Can You Combine Loans Into a Single Payment? (Yes, Here’s How)

The concept of debt consolidation exists to help people who have multiple debts that they owe to multiple creditors. If you’re struggling under the weight of a large debt balance, combining your debts into a new loan might offer the relief you need.

Debt can be difficult to pay off, especially if you have more than one lender and the interest rates on the debts vary. I’d consider debt consolidation as a legitimate way of getting out of debt because it simplifies repayment and may save you money, but there are some methods that are riskier than others.

Pros and cons of debt consolidation

What is debt consolidation?

When you're struggling with debt and not sure where to turn, it might be time to consider debt consolidation. Essentially, this means combining several loans into one new loan with a single lender and a single monthly payment.

The new lender pays off each of the individual loans and creates a brand-new loan. You might negotiate a lower interest rate or a lower monthly payment, both of which can benefit you in different ways. Plus, the interest rate is typically fixed, which helps with budgeting each month — you always know how much you’ll pay on the new loan.

Debt consolidation is a useful option if you have multiple debts, if you aren’t making all of the minimum payments on time, or if you’ve improved your credit and can qualify for a better interest rate on a consolidation loan.

How debt consolidation can benefit you

There are several compelling reasons to consider debt consolidation if you have multiple debts.

Simplifying your debt repayments

One of the hardest parts about carrying a heavy debt load is keeping track of all of the loans. You need to pay attention to payment due dates, interest rates, payment amounts, and lenders, which could all be different.

One big perk of debt consolidation is that it can simplify how you pay off your debts. I personally would much rather set up one monthly payment to one creditor, instead of monitoring various different loans and payment amounts. It’s just easier to make sure you don’t miss a payment when there’s only one to consider!

You also usually get a fixed rate on a consolidation loan, so your monthly payment won’t fluctuate, unlike with the APR on credit cards, which is usually variable.

Getting out of debt faster

Although it’s not guaranteed, in many cases, combining your debts into one can help you pay off debt more quickly. Focusing your efforts on a single loan payment can be motivating — instead of wondering whether you’re making progress on half a dozen loans, you can see clearly how the balance is dropping on your only loan.

If you qualify for a lower interest rate, you might be able to pay the same total amount you were before the consolidation, but end up debt-free more quickly because less of each payment is swallowed by interest charges.

Paying a lower interest rate

Another potential benefit of debt consolidation is a lower interest rate on your debt. This depends on your credit history and whether you’ve raised your credit score since taking out various debts in the first place.

If your debts are recent and your financial situation hasn’t changed much, you probably can’t get a lower interest rate. But perhaps you’ve worked hard to build your payment history and improve your credit scores. That may help you qualify for a better interest rate on a debt consolidation loan, saving you money in the long run.

How debt consolidation may cause issues

Securing a lower monthly payment with consolidation has many positives, but you should be aware that it could also mean you'll stay in debt longer since everything you owe is all rolled into one amount. The longer you stay in debt, the more you pay to the lender over the life of the loan in interest.

However, a lower interest rate could cancel out that issue. Or you might find that you’re able to pay off the entire consolidation loan in the same amount of time it would have taken to pay off four or five separate loans.

It’s also important to realize that consolidating debt isn’t a magic solution to cash flow problems or poor money management habits. If your debt is a result of overspending, for example, a consolidation loan won’t change the way you spend your money, so you want to consider the overall benefit to your finances before consolidating.

Make a plan to deal with debt

If debt consolidation sounds like a good solution for you, it’s time to examine your debts and overall finances. Be sure to create a plan that makes sense for your circumstances.

• List all of your debts including credit cards, student loans, personal loans, and others. Include balances, interest rates, and current monthly payment amounts.
• Check your credit score to get an idea of whether you’re eligible for a debt consolidation loan. Obviously, the better your credit score, the better your chances of getting a loan (and one with a favorable interest rate.)
• Contact multiple lenders including banks, credit unions, and online lenders to obtain consolidation loan quotes.
• Compare debt consolidation loan quotes and calculate whether any of them are better than others for what you need to accomplish.
• Decide whether you’ll consolidate based on the loan interest rate, monthly payment, payment terms, or a combination of criteria. Or you might look into alternatives to consolidation loans, which we’ll explain below.

What is the best debt consolidation company?

The best debt consolidation depends on factors like the types of loans you have, your credit score, and repayment terms you’re seeking. Take a look at our selections of the best debt consolidation companies for a comprehensive view, but here are a couple of our top choices:

SoFi® loans are an excellent option, especially for large loan amounts, since they offer consolidation loans of up to $100,000. You can get a fixed APR between 8.99%-29.99% (as of 09/05/24) with a 0.25% rate discount if you opt for direct payments Plus, SoFi doesn’t charge loan fees, and there’s no penalty for prepayment of your loan.

Let’s say you have a lower credit score and are looking to consolidate. Best Egg may be a good consolidation loan provider because the company says it looks at more than just your credit score to determine your loan rate. Best Egg offers consolidation loans of $2,000 to $50,000. The application process is quick and you could have your loan funded within 1-3 business days.

Best debt consolidation loans for each type of debt

All types of unsecured debt, as well as certain secured debts, are often eligible for debt consolidation. The most common situation is that people have multiple types of high-interest debt that they haven't been able to pay off. Here's a look at some of the more common types of debt and how you could get your finances on track:

Student loans

Consolidating student loans is one way to switch to a lower interest rate and save money or lower your payments. There are several ways to consolidate student loans.

It’s important to realize that loans like the income-driven repayment (IDR) plan can be appealing, but they may stretch out your payments, keeping you in debt repayment longer. Check studentaid.gov to learn about student loan consolidation options and use the Loan Simulator to compare how they would impact your repayment and interest.

Refinancing may also be a way to consolidate student loans. It’s available for both federal and private student loans, but be aware that you will lose certain protections on your federal loans, like income-based repayment options, if you refinance them. You'll also typically need a good credit score to qualify for refinancing.

Another possibility is that you could disqualify yourself from loan forgiveness programs when you consolidate, either due to a rule or because you restart at zero (after potentially years of monthly payments). That’s what happened to my husband when he consolidated his student loans. This was years ago, but you’ll need to look into all of the potential impacts of consolidation before you make that decision.

Here's one of our favorite sites for refinancing student loans

Credit cards and other unsecured debt

Working with a top-rated debt consolidation company could reduce your unsecured debt payments and help you avoid bankruptcy. Credit card balances with high interest rates can seem impossible to dig out of.

With the average credit card APR hitting 22.76% in May 2024, a consolidation loan can represent huge savings potential. Many of our best debt consolidation loans have rates as low as 8.99% or even 6.99%. If you're struggling to make the minimum payments, a debt consolidation loan could reduce the amount you pay each month.

You can usually check and compare rate offers with various loan companies with no impact to your credit score, though applying for a loan typically means a hard credit check that can temporarily lower your score.

Auto and home loans

With vehicle loans, you'll typically want to refinance rather than consolidate because you’re likely to get a lower interest rate through refinancing. As with consolidation loans, you'll want to get multiple quotes and carefully review the terms of any refinance loans you're considering.

Consolidating mortgage debt is possible as well, but it may be more complicated than trying to refinance your mortgage instead. If you have two mortgages (for example, if you took out a home equity loan in addition to your original mortgage), you can potentially consolidate them, depending on the interest rates you began with and what you could qualify for now.

For larger debts like your mortgages, it’s wise to consult with a lender and really weigh your options for trying to get a lower monthly payment, whether through consolidation or refinancing.

Alternative consolidation options

Personal loans

Traditional loan consolidation may not be the most affordable option for you, depending on the interest rates involved. If you are very cautious about your finances and are certain you can manage your expenses, then a personal loan may be a more affordable option.

Lenders may offer loans for as little as $1,000 and as much as $50,000 or even $100,000. If you qualify for a loan at a good rate, you’re free to spend the proceeds of a personal loan however you wish, including to pay down debt.

The best personal loans offer interest rates that are lower than the current rates you’re paying on your debt, no fees, fixed rates, and early payoff without penalty. That’s what I would consider most when shopping for a personal loan. That said, look for the features that matter most to you, and the main point is probably to pay off debt efficiently. Be sure to make a plan for your personal loan so you don’t forget about your objective.

Balance transfer credit card

With a good credit score, you may be able to take advantage of a intro annual percentage rate (APR) balance transfer credit card. This is another route to consolidating debt: move your outstanding credit card balances to a new card with a 0% intro APR so you can continue paying it off without accruing more interest.

A balance transfer offer is best if you can reasonably pay off the debt before the intro APR offer expires, which may be six months up to 18 or 21 months. You’ll want to pay attention to when your rate is expected to increase so you can focus on either paying it off in full or trying to find another balance transfer, if needed.

Home equity line of credit (HELOC) or home equity loan

Is your debt total too high for a balance transfer or personal loan to make much of a difference? Then you may want to look into a home equity line of credit (HELOC) or a home equity loan.

This option uses your home as collateral to borrow from in order to consolidate and pay off debt. With a home equity loan, you take out a lump sum against the equity you’ve built up, while a HELOC lets you access and draw funds as needed for a fixed period of time.

You can then use this money to pay off your high-interest debt and then repay your home equity loan or line of credit.

Be cautious about loans that use your home as collateral, since that theoretically means you run the risk of losing your home if you default on the loan.

Debt settlement companies

Proceed with caution if you’re thinking about debt settlement. The basic idea is that you work with a company that negotiates with your creditors on your behalf. They try to get you a lump-sum payoff amount that “settles” the debt for less than you owe.

While it may sound appealing to have a debt settlement company bring your loan payments down significantly, there are risks. You typically must stop payments on debts for several months while they negotiate (which will cause a drop in your credit scores). Plus, settled debts don’t reflect as positively on your credit history as debts that are paid in full.

Debt settlement company fees can be steep, cutting into any savings they achieve for you. Plus, you have no guarantee that your creditors will work with them. Due to the risks, it’s usually best to only pursue this if you’re deeply in debt and don’t anticipate being able to pay off your debt fully within a few years.

For debt settlement, we recommend:

If you're not sure whether debt settlement or debt consolidation is best for you, we recommend:

FAQ

Bottom line

Debt consolidation can be a smart strategy to help you get out of debt. Be sure to check out various options to find the one that creates a payment plan you can handle and that will save you money, speed up your debt payoff, or both.

Making a debt consolidation plan can make the often-frustrating process of paying off debt less painful. And even after debt consolidation and getting your balance down to zero, you need to continue to manage your finances (and any future debt) responsibly.