When you have many debts, it can feel like you're drowning. You’re not alone, and you’re not out of options. In 2025, with interest rates fluctuating and financial stress at an all-time high, loan consolidation has emerged as one of the smartest and fastest ways to take back control of your money. Imagine combining all your monthly payments into one manageable bill, often with a lower interest rate and a clear payoff timeline.
Debt consolidation means taking out one new loan to pay off many smaller debts. Instead of making many payments each month to different lenders, you make just one payment to one lender. If you are thinking about becoming debt-free, check out PrimeWay, which has the lowest rates for Consolidation and HELOC based on comparisons with over 86 financial institutions.
This doesn't make your debt go away. You still owe the same amount of money (or sometimes a little more because of fees). But it might make your life easier in these ways:
You can usually consolidate these types of debt:
Some debts like mortgages (home loans) and federal student loans usually need special programs to consolidate.
Before you decide to consolidate your debts, ask yourself these questions:
Your debt-to-income ratio (DTI) tells lenders how much of your income goes to paying debts each month. A lower number is better.
How to calculate your DTI:
For example, if you pay $1,500 in debt each month and earn $5,000, your DTI is 30%.
What your DTI means:
Most lenders prefer a DTI under 43%. If yours is higher, you might need to pay down some debt before consolidating.
There are several ways to consolidate debt. Each has good and bad points.
A personal loan gives you money all at once, which you pay back in equal monthly payments.
These loans don't require anything as backup (collateral).
Good points:
Bad points:
When to choose: Good for people with strong credit who don't want to risk their property.
These loans require something valuable as backup (collateral), like a car or savings account.
Good points:
Bad points:
When to choose: Good for people with valuable property who need a larger loan amount or lower rate.
Balance transfer cards let you move debt from high-interest credit cards to a new card with a low or 0% interest rate for a limited time (usually 12-21 months).
Good points:
Bad points:
When to choose: Good for people with good credit who can pay off the balance before the 0% rate ends.
If you own a home, you might be able to use the value you've built up in it (equity) to consolidate debt.
A home equity loan is like a second mortgage. You borrow a set amount and pay it back over time.
Good points:
Bad points:
When to choose: Good for homeowners with significant equity who need to consolidate a large amount of debt.
A HELOC works like a credit card secured by your home. You can borrow up to a certain limit whenever you need it. PrimeWay HELOC doesn't have hidden fees and offers lower fees compared to other financial firms.
Good points:
Bad points:
When to choose: Good for homeowners who need ongoing access to funds and can handle changing payment amounts.
Before using your home to consolidate debt, understand these risks:
Student loans often need special handling for consolidation.
This program from the U.S. Department of Education lets you combine multiple federal student loans.
Good points:
Bad points:
When to choose: Good for simplifying federal loan payments or gaining access to certain repayment plans.
This involves taking out a new loan from a private lender to pay off existing student loans.
Good points:
Bad points:
When to choose: Good for people with stable income and good credit who mostly have private student loans.
| Method | Primary Use Case | Typical Interest Rate Profile | Key Fees | Major Pro | Major Con | Primary Risk Factor | Ideal Borrower Profile |
|---|---|---|---|---|---|---|---|
| Personal Loan - Unsecured | Consolidating various unsecured debts (credit cards, medical bills) | Fixed; 6%-36% APR | Origination (0-12%), late payment | No collateral required; quicker approval | Higher rates/lower limits than secured; stricter credit needs | Default leads to credit damage, collections | Good to excellent credit, prefers not to pledge assets |
| Personal Loan - Secured | Consolidating larger debt amounts; for those with assets to pledge | Fixed; Generally lower than unsecured (e.g., 7-11%) | Origination, late payment; collateral appraisal may apply | Lower rates, higher amounts, easier approval with collateral | Risk of losing collateral (e.g., car, savings) | Loss of pledged collateral | Has valuable collateral, needs larger loan or lower rate, comfortable with collateral risk |
| Balance Transfer Credit Card | Consolidating high-interest credit card debt | 0% Intro APR (12-21 months), then high variable APR (18%+) | Balance transfer (3-5%), potential annual fee, late payment | Significant interest savings during intro period | Fees; intro rate is temporary; high risk of more debt if not paid off | High interest on remaining balance after intro; new debt | Good credit, can pay off balance in intro period, disciplined spender |
| Home Equity Loan (HEL) | Consolidating large amounts of high-interest debt using home equity | Fixed; Lower than unsecured (e.g., 7-11%, avg 8-8.5%) | Closing costs (appraisal, origination, title, etc. 0.5-5% of loan) | Lower rates, large loan amounts, predictable payments | Home is collateral; significant closing costs; depletes equity | Foreclosure on home | Homeowner with significant equity, stable finances, disciplined, needs to consolidate large debts |
| Home Equity Line of Credit (HELOC) | Flexible access to funds for ongoing needs or consolidating variable debt amounts | Variable (linked to Prime); Lower than unsecured (avg 8-8.5%) | Closing costs, potential annual, transaction, inactivity fees | Flexibility to draw as needed; interest-only payment option | Home is collateral; variable rates mean payment can rise; payment shock | Foreclosure on home; rising payments | Homeowner with equity, needs flexible funds, can manage variable payments and home risk |
| Federal Student Loan Consolidation | Simplifying federal student loans; accessing IDR/PSLF | Fixed; Weighted avg. of old loans, rounded up 1/8th % | None | Single payment, IDR/PSLF access, fixed rate | May not lower rate; longer term can mean more total interest; loss of some original loan benefits | Higher total interest if term extended significantly | Borrower with multiple federal loans seeking simplification or specific federal programs, not primarily rate reduction |
| Private Student Loan Refinancing | Lowering interest rates on private or federal student loans | Fixed or Variable; Can be lower than original loans (e.g., 3.88%+) | Few lenders charge origination/application; late fees apply | Potential for lower interest rate and payment | Loss of federal loan benefits (IDR, forgiveness) if refinancing federal loans | Loss of federal protections; variable rate risk | Good credit/income, primarily private loans, or federal loans if benefits not needed and rate is much lower |
The interest rate and fees on your consolidation loan greatly affect how much you'll pay over time.
Interest rates vary based on your credit score, the type of loan, and current market conditions.
Unsecured Personal Loans:
Secured Personal Loans: Usually 7%-11%
Balance Transfer Cards: 0% during intro period (12-21 months), then 18%-27%
Home Equity Loans and HELOCs: Usually 7%-11%
Federal Direct Consolidation Loans: Weighted average of your current federal loan rates, rounded up to the nearest 1/8%
Private Student Loan Refinancing: Ranges from about 4% to 13%, depending on credit and loan term
Fees can add a lot to the cost of consolidation.
Origination Fees (Personal Loans): 1%-8% of the loan amount (some lenders charge up to 12%)
Balance Transfer Fees: 3%-5% of the transferred amount
Closing Costs (Home Equity Products): 0.5%-5% of the loan amount, including:
Annual Fees: Some HELOCs and credit cards charge yearly fees ($5-$250)
Late Payment Fees: Vary by lender ($10-$50)
Prepayment Penalties: Fees for paying off a loan early (rare nowadays but check your loan terms)
Lenders look at several factors to decide if you qualify for a consolidation loan.
Income: You need steady income to show you can repay the loan.
Credit Score: Higher is better.
Debt-to-Income Ratio: Most lenders prefer under 43%
Minimum Loan Amounts:
Home Equity (for HELs/HELOCs): You need to own at least 15%-20% of your home's value.
Follow these steps to consolidate your debt.
There are two ways this happens:
Make sure your old debts are completely paid off.
Getting a consolidation loan is just the beginning. What you do afterward matters most.
This is extremely important. Many people fail at debt consolidation because they run up new debt.
Try these strategies to get out of debt sooner:
Many people make these mistakes with debt consolidation.
Consolidation doesn't solve the real problem if you keep overspending. You must change the habits that got you into debt.
Not all methods work for everyone. A balance transfer card might be great for someone who can pay off the debt quickly, but terrible for someone who can't.
Look beyond the monthly payment to understand the total cost, including all fees and interest over the life of the loan.
Paying off credit cards with a consolidation loan frees up your credit limit. If you charge them up again, you'll have double the debt.
Missing payments on your consolidation loan can lead to late fees and credit score damage.
Make sure you understand all the terms, especially for variable-rate loans or introductory offers.