The Best Debt Consolidation Options

The best debt consolidation option gives you a monthly payment you can afford, while reducing the amount of interest you pay. Find your best option here.

Choose Your Debt Amount

Home » Credit Card Debt Relief » Debt Consolidation » The Best Debt Consolidation Options

Debt Consolidation: Options & Tips

Monthly bills can be like roaches. You turn on the light every 30 days and they scatter as you try to stomp them. Wouldn’t it be easier if you just had one roach/bill to chase down?

That can happen with the right debt consolidation program.

Millions of consumers have said yes by consolidating debt into one payment by using a debt consolidation loan to pay off all their bills at once, or enrolling in a debt management program the offers the same solution – a fixed monthly payment – but without having to take out a loan.

There is no single best way to consolidate debt. Weigh the pros and cons of the many options and determine the one that suits  your financial situation.

What Is Debt Consolidation?

Debt consolidation is a financial strategy that combines high-interest bills, like credit card debt, into a single, affordable monthly payment with a lower interest rate. A successful plan should eliminate debt in 3-5 years.

The primary benefit of debt consolidation is that, with the lower interest, it reduces your monthly bill payments and allows you to pay off the debt quicker.

What Is the Best Way to Consolidate Debt?

There are many ways to consolidate your bills into one payment. The best debt consolidation programs include:

  • Free consultation
  • Low to no fees
  • Minimal impact on your credit score
  • Easy program enrollment
  • Financial peace of mind
  • A road to paying off all your debt in 3-5years

It’s important to understand the pros and cons of each option. We will discuss some of the best ways to combine all your bills, as well as some of the riskier ways. The best debt consolidation options are:

  • Credit Counseling and Debt Management Plan
  • Debt Consolidation Loan
  • Credit Card Balance Transfer
  • Peer-to-Peer Loans
  • Borrowing from Friends and Family

Some of the riskier options are:

While the above can be good options, they come with risks that may make a shaky financial situation worse. That should be taken into account when you consider what option is the best way to consolidate debt for you.

Credit Counseling and a Debt Management Plan

A credit counseling service works with creditors to get you affordable terms, including lower interest rates and monthly payments. You make one monthly payment to the counseling service, which distributes the money to your creditors. Consolidating your debt payments with a debt management plan requires you to give up your credit cards and live on a budget; you complete the plan in 3-5 years.

You must qualify, based on income, to enroll in a debt management program. If you have enough income to pay your monthly expenses, you qualify. If you don’t have enough income to pay off your debt, the credit counselor may recommend debt settlement or bankruptcy.

Some nonprofit credit counseling agencies – including InCharge Debt Solutions — have agreements that can result in credit card debt forgiveness. The program has you pay 50-60% of your balance in fixed payments over 36 months, then the balance is forgiven. These programs are called Nonprofit Debt Settlement or Less Than Full Balance.

A study by Ohio State University found that consumers in credit counseling programs significantly reduce their debt and develop better money management skills than those who did not receive counseling. The key is finding a good credit counseling service. Verify that the agency is accredited by the National Foundation for Credit Counseling.

Pros of Credit Counseling & Debt Management

  • Credit counselors help you develop a budget and learn to manage your money
  • Interest payments are reduced
  • Calls from debt collectors stop
  • Credit scores are not a factor in qualifying
  • There is one fixed monthly payment, due on a specific date
  • Each payment makes a dent in your debt
  • Plans take 3-5 years to complete.

Cons of Credit Counseling and Debt Management

  • Creditors can revoke any concessions they made if you miss a payment
  • You can’t sign up for any new credit cards
  • There is a fee for the program, usually $40 a month.

When Credit Counseling Is the Best Option

Credit counseling is a good option for those who understand they need help managing their money. Participants must be committed to stop using credit cards and get serious about living on a budget. In turn, they reap the benefits of reduced interest rates and get out of debt in 3-5 years.

Credit counseling is the best option for those who want to consolidate debt without taking out a loan, want to improve their use of credit and their credit score and learn to better manage their finances.

For more information on credit counseling and to learn how others have paid off their debt, visit InCharge Reviews.

Debt Consolidation with a Personal Loan

A personal loan, issued by a bank or credit union, is for a specific sum of money and paid back in installments in a predetermined term, usually 12-60 months. Personal loans typically have fixed interest rates based on your credit score and the size of the loan.

When you consolidate debt with a personal loan, you use the loan money to pay off one or more credit cards and then make a fixed monthly payment to the lender.

A personal loan is a form of unsecured debt, meaning the loan is not backed by collateral. If you default on a personal loan, you won’t lose anything, unlike if you fail to make payments toward your car loan or mortgage, which are secured debts. However, if you default on a personal loan and your creditor sues you, a lien could be placed on your wages or property.

Pros of a Personal Loan

  • The large number of potential lenders means you can shop around for the best terms.
  • There is one monthly payment, due on a specific date.
  • Monthly payments significantly reduce the balance, unlike the minimum payments on credit cards that don’t put a dent in total amount owed.
  • The loan is paid off in a specific time period, unlike the open-ended balance of a credit card.
  • Many lenders are able to consolidate debt online without having to visit a physical location.

Cons of a Personal Loan

  • Lenders thoroughly vet your financial standing.
  • The lower your credit score, the higher the interest rate.
  • You may not qualify for a loan if you have a poor credit score.
  • When you apply for a personal loan, it shows a hard query on your credit report, which can lower your credit score.

When a Personal Loan Is the Best Option

A personal loan is among the best debt consolidation options when it comes with a low enough interest rate and affordable monthly payment. It should show significant savings compared to what you were paying on your credit cards. For example, if you have $10,000 in credit card debt at 23.99% interest, and you qualify for a personal loan at 10% interest, you will save $1,399 a year, or more than $100 a month, in interest. If the payment on a personal loan is higher than you can afford, you can ask for a longer repayment period to bring it down, but keep in mind this means paying more in the long run because of interest on those payments.

Credit Card Debt Consolidation: Balance Transfer

Using credit card balance transfers to consolidate credit card debt also saves money on interest. With a balance transfer, you move debt from a high-interest credit card to one with a lower interest rate, preferably one with zero-percent interest. For example, if you have $5,000 in credit card debt on a card with a 23.99% interest rate and you can transfer it to a 0% card (12-18 month introductory offer), you’ll save $1,200 over 12 months. Most credit cards charge a 3% balance transfer fee. In this case, that’s only $150: still worth filling out the application. Keep in mind that the interest goes up after the introductory period ends.

To pursue balance transfer debt consolidation, shop online for “low interest credit cards” or “zero percent credit cards.” You don’t have to wait for an offer to show up in your mailbox – be proactive and see if you qualify for a credit card with better terms. Before transferring, give your current creditors a chance to beat or match competing offers.

Pros of a Balance Transfer

  • If you have a good credit score – something above 680 — you’ll find plenty of offers.
  • A 0% interest rate can save you a lot of money compared to 14%-30% credit card interest.

Cons of a Balance Transfer

  • You will need a credit score of 680 or higher to qualify.
  • Introductory rates typically increase after 12-18 months.
  • Transfer fees can cut into savings.
  • Credit card consolidation moves revolving debt, it doesn’t eliminate it. You could add to your debt if you don’t stop using credit cards.

When a Balance Transfer is the Best Option

Transferring high-interest credit card debt to lower-interest cards is a good dept consolidation option if your credit score qualifies you for low to no-interest introductory offer cards. It’s also a good option if you are committed to paying off the debt during the introductory low-interest period. If you’re going to use the card to run up more debt, then it’s not a good option for you.

Peer-to-Peer Loans

Peer-to-peer (P2P) lending matches borrowers, online, with investors who hope to get a solid return. P2P lending is increasingly popular, and is used for many purposes, including debt consolidation.

The attractive thing about P2P is that the process is online. There is no bank, credit union or lending institution and no managers to talk to about your loan. You can do the entire process at home with just your laptop or tablet. Lenders can be found through Lending Club, Prosper, Upstart, StreetShares or a variety of other P2P lender sites.

Peer-to-peer loans are unsecured debt, meaning you don’t have to offer collateral. The lenders accept the risk that you will repay the loan, usually in 3-5 years. Borrowers make monthly payments that are automatically drawn from their bank account.

Pros of a Peer-to-Peer Loan

  • It’s easy to shop for lenders online and compare rates and terms.
  • Interest rates are far lower than credit card interest rates.
  • There is a lot of competition in the market, which drives rates down.
  • Fees associated with borrowing are usually lower than other options.

Cons of a Peer-to-Peer Loan

  • Each lender has its own borrower qualifications, and you can’t be sure what negative in your credit history could be the reason you’re rejected.
  • A credit score of 600 or better usually is required.
  • The amount you’re approved for may not be the amount you need to settle your debt.

When a Peer-to-Peer Loan is the Best Option

If your credit report has a few dings in it and you can’t get a debt consolidation loan from a bank or credit union, P2P lending may be a good debt-relief option. The P2P platform is a meeting place for investors willing to take a risk, so they may overlook dents in your credit history. Their lending rates can help lower your monthly payments on credit card debt and get you out of debt faster.

Borrowing from Friends and Family

One way to consolidate your bills is to borrow money from a family member or a friend to pay off your debts. Whether this is a good option for you depends on several factors including whether you’re close enough to someone who has the financial means and willingness to do it, and whether you’re comfortable asking.

If you are considering asking a friend or family member for help as a debt consolidation option, you should be willing to share your budget, debts, monthly payments and interest rates with them. Show them that you can afford to pay them back and how you plan to do it, including highlighting budget areas where you have already cut back or are willing to cut back.

Put the agreement in writing, including payment amounts and schedule, even if they say it’s not necessary. Doing this will not only show you’re serious about paying them back, but also will be a record of the agreement if memories differ in the future.

Don’t ask for help from a friend or family member who is struggling financially. Keep in mind that they may feel the need to help, even if they can’t. You don’t want to transfer your own financial difficulties to someone else.

Pros of Borrowing from Friends and Family

  • No dealing with a lending institution, which requires forms, a credit check and more.
  • If there’s an interest charged, it likely will be lower than what an established lender would charge.
  • The payment schedule may be more flexible.
  • They likely won’t require a minimum credit score
  • Your credit score will improve, since friends and family don’t report to credit bureaus, and your credit report will show that you have wiped out credit card debt without acquiring new debt.
  • A loan from a family member or friend typically won’t have fees and other borrowing costs.

Cons of Borrowing from Friends and Family

  • If you can’t make payments, it could hurt your family relationship and cause long-standing issues.
  • You may not want those close to you to know about your financial problems.
  • Memories of what was agreed to may change, leading to hurt feelings or a damaged relationship.
  • You may feel you have to justify spending money if you buy something or go on a vacation.
  • Unlike a lending institution, emotion and underlying subjective factors can affect the overall agreement in negative ways.

When Borrowing from Friends and Family is the Best Option

Borrowing from family and friends to consolidate debt is a good option if someone has the resources to help you, is willing to, and does not need a swift repayment. You should consider this option when you have a good relationship with someone who wants to help and they’re OK with you missing or being late on a payment because of unforeseen events. If your friend or family member doesn’t charge you interest, or charges you low interest, it can save you a lot of money.

Taking out a 401(k) Loan

If you have a 401(k) plan at work, you can borrow some of the money you’ve invested and use it to pay off debt, though this is not considered a good option. Loans against your retirement plan must comply with company rules, including limits on how much you can borrow, usually 50-80% of your investment balance with a capped amount of $50,000. You repay it through payroll deduction, with a term that’s usually 2-5 years.

You may be required to pay back the borrowed sum with interest (around 5%). If borrowing from your 401(k) plan seems like a good option for you, talk to the benefits administrator at your place of employment and compare payment terms with other consolidation options.

Pros of a 401(k) Loan

  • It’s easy to qualify, with no credit check.
  • Many 401(k) administrators have easy online application and quick approval.
  • You’re borrowing from yourself.
  • The money is often available within one or two days of applying.

Cons of a 401(k) Loan

  • You are taking money from your retirement plan.
  • The balance of your retirement plan is reduced, meaning it’s earning less interest.
  • If you leave your employer before the loan is paid off, you will have to pay taxes and possible fees on what you still owe.

When Borrowing from a 401(k) Plan is the Best Option for You

Borrowing from a 401(k) is a good idea if you are young and still have decades to put away money for retirement. It’s also a good option if you can afford the payroll deductions to pay it back and if you know you will be with your employer for the length of time it will take to pay it back.

Taking Out a Home Equity Loan

A home equity loan is a loan against the equity (current value minus amount owed) in your home. For example, if the home you bought 10 years ago is appraised at $250,000 and you only owe $150,000, you have $100,000 in home equity that you could tap into to consolidate your debts. Home equity loans are among the lowest interest (5%-9%) and longest repayment schedule loans (15-30 years) a person can access, making the monthly payments significantly lower and more affordable than other kinds of debt consolidation.

You can take out a home equity loan from a bank, credit union, mortgage broker or online lender. The terms of the loan will depend on your credit score, how much equity you have in your home and your debt-to-income ratio. Home equity loans have fixed interest rates and fixed monthly payments. Home equity loan interest for debt consolidation used to be tax-deductible, but it no longer is for loans taken out after December 2017.

Pros of a Home Equity Loan

  • Low and stable interest rates
  • There is a fixed payment schedule

Cons of a Home Equity Loan

  • Your house is at risk if you can’t make payments
  • It decreases equity in your home that could otherwise serve as retirement savings, or other long-term purposes.
  • Applying for one is akin to applying for a mortgage, with closing costs for credit checks, financial vetting and lots of paperwork.

When a Home Equity Loan is the Best Option

A home equity loan is a good idea when your home has appreciated significantly since you bought it, and you’ve paid off more than 20% of the mortgage. It also helps if you are committed to not run up additional debt after taking on the loan.

As a one-time “get out of debt card,” a home equity loan can be the most affordable debt consolidation option, but you should be careful about making a habit of borrowing on your home. Your home is an investment, likely the best one you can make if you build up equity. Remember, you want to have your home paid off when you’re in your 60s, and certainly by your 70s.

Borrowing from a Life Insurance Policy

A lesser known debt consolidation option is to borrow money from a life insurance policy. If you have a whole, or permanent, policy (as opposed to a term policy), you can borrow against the accumulated cash value. The policy itself is the collateral.

You have to have accumulated a certain amount of value before your policy can be drawn on. The guidelines about when and how much you can borrow differ depending on the insurer. You may not have to make payments, and your insurer will deduct the amount of the loan from the death benefit. Some insurers may charge fees, and if there are riders that depend on full payment, they may become null, so it’s a good idea to talk to your insurance agent in depth if you are considering this option.

Pros of Borrowing from a Life Insurance Policy

  • It’s not hard to borrow with no hard credit check.
  • Your policy is the collateral.
  • The money goes into your bank account, interest-free

Cons of Borrowing from a Life Insurance Policy

  • You can only borrow from your accumulated cash value.
  • Different insurers have different guidelines, and you may not be able to borrow enough to effectively take care of your debt.
  • If you don’t pay back the loan, some other parts of your insurance may be negatively affected.
  • Your death benefit may be reduced by however much you borrowed.

When Borrowing from a Life Insurance Policy is the Best Option

Borrowing from a life insurance policy could be a good debt consolidation option if the policy has significant cash value, and if you or your family would not be financially devastated by losing the death benefit. This option may be preferable to bankruptcy, if none of the other options detailed are feasible.

Choosing the Best Debt Consolidation Option for You

There are plenty of options for reducing debt, but which one is best for you depends on your financial situation and resources.

Some of the things to keep in mind when weighing debt consolidation options are:

  • Your credit score – the higher the score, the more and better options you have.
  • Your income and ability to repay a loan.
  • Whether you can avoid accumulating, or even using, credit in the future.
  • Your assets and resources.

No matter what your situation, the best tip for making a good debt consolidation decision is that you fully understand your financial situation. Don’t ignore your credit card statements, and don’t avoid dealing with them. Knowledge is power, and the more you know about your financial situation, the better you’ll be able to deal with it.

Making on-time payments is crucial for any option to work, even if you have decided on one, falling behind on your bills will just lead to fewer debt consolidation options.

If you  only make minimum payments on your credit card debt, and can’t afford more, the best place to start would be with a phone call to a nonprofit credit counseling agency like InCharge Debt Solutions.

The certified counselors at InCharge are trained to educate consumers on how to manage their money effectively and offer counsel on the best option for eliminating debt. The choices discussed could range from a debt management program, to debt consolidation loan to debt settlement or bankruptcy.

By law, the counselors at nonprofit agencies are required to offer advice that is in the client’s best interest. They could lose their nonprofit status if they don’t.

Call the credit counselors, or fill out the Get Started form, at InCharge Debt Solutions and then decide which option best suits your situation.

About The Author

George Morris

In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.


  1. DeNicola, L. (2019, June 20) 6 options to consolidate your credit card debt. Retrieved from
  2. Pascarella, D. (2018, November 26) The Right Way To Borrow Money From Friends And Family. Retrieved from
  3. N.A. (2019, July 26) Debt Consolidation Loans. Retrieved from
  4. Sherrier, J. (2019, January 4) 9 things you should know about balance transfer cards. Retrieved from
  5. Roll, S. and Moulton, S. (2016, April 12) The NFCC’s Sharpen Your Financial Focus Initiative Impact Evaluation. Retrieved from
  6. Jacobs, Deborah (2013, March 25) Think Twice Before Lending Money To Family. Retrieved from
  7. Nealon, L. (2021, November 11) Borrowing Against Your Life Insurance Policy. Retrieved from