Personal Loans for Debt Consolidation: Pros and Cons

Taking out personal loans for debt consolidation can be a wise decision, under the right circumstances. When you have a lot of unsecured debt in the form of credit cards, personal loans can be to your advantage. However, if you borrow too much money, you might get in over your head. There are pros and cons of each side and looking at your case individually is the only way to determine what is right for your situation.


  • If you have several credit cards, you are probably paying a very high amount of money in finance charges. The interest that accumulates on these accounts could be several hundred dollars per month. When you take out a personal loan, you can often get the money you need to pay off the cards at a much more reasonable rate of interest. This could save you a lot of money, as well as make your monthly payment much more manageable.
  • You can save your credit score with a personal loan. If you can consolidate several credit cards onto a single loan, it will look much better on your credit report. Having several different accounts that are all maxed out looks bad on your credit report and it will be hard to obtain any more credit in the future. Putting them all on a single account will possibly help bump up your score. 


  • The term for a personal loan might not be as long as you'd like. If you have extremely high credit card balances, it might take you a long time to pay everything off. With a loan, you might not get as long a term as it takes to have a payment that you can afford.
  • Your credit score might have been better when you first got the credit cards. However, now that you have a high amount of debt, your credit might not be good enough to get a personal loan. Many times, a person's debt-to-income ratio is no longer acceptable to lenders and you can no longer qualify for a loan. In this case, you are stuck with the credit cards and their high interest.
  • Getting in over your head with a debt consolidation loan is not any better than having too much credit card debt. If you've racked up too much debt, it does not matter where it's at. You're still in over your head and you do not know how you will repay it.

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