Debt consolidation: 3 popular options, and the pros and cons of each one

By Corey Buhay | Published on March 30, 2026

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TL;DR

• Debt consolidation can help you simplify your bills, streamline repayment, and accelerate your progress toward debt pay-off
• You can use a balance-transfer credit card or a personal loan to perform a DIY debt consolidation, or take out a consolidation-specific loan
• If you don’t qualify for a new loan, nonprofit credit counseling and other repayment programs can help you choose a strategy and take control of your debt

If you’ve ever felt like you’re drowning in a constant barrage of bills, deadlines, and loan servicer mailers, you know just how overwhelming debt can be. That’s especially true if you have a few different creditors to keep track of. Enter debt consolidation.

Debt consolidation lets you bundle multiple debts into a single principal balance with a new lender. Once you consolidate, you’ll only have one deadline and payment amount to navigate each month. This level of organization makes it way easier to keep track of what you owe. That can reduce the likelihood of missed payments, help you protect your credit, and give you a stronger sense of ownership over your finances.

Debt consolidation isn’t one-size-fits-all. Some programs involve new loans, others work through credit counseling, and some you can do yourself. Each method has trade-offs in cost, credit impact, and complexity. Here’s a closer look at each one.

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Option 1: Debt consolidation loans

Loans are one of the most popular methods for consolidating debt. When you take out a purpose-made debt consolidation loan (a type of personal loan), your new lender will pay off all your existing creditors. When those accounts are closed, you’ll be left with just one loan payment to worry about each month.

The pros of debt consolidation loans

• Fixed terms make it easier to budget
• Shorter loan terms can lead to faster payoff
• Fees tend to be low or non-existent.

The cons of debt consolidation loans

• Most lenders have minimum credit requirements
• Interest costs can add up over time
• There’s less personal accountability than you’d have with a nonprofit partner

Option 2: Nonprofit debt consolidation programs

Nonprofit debt consolidation programs offer a more structured way to bundle your existing debts. These are different from debt consolidation loans.

• With a debt consolidation loan, you find a new lender to pay off your debts for you. You then make payments directly to that lender.
• With a debt consolidation program, you find a debt relief agency that works with you to come up with a payment plan. They then help you secure a debt consolidation loan, usually with a third-party lender. You then make payments to the debt relief agency, who acts as a liaison between you and the lender.

Debt consolidation programs typically help folks with less-than-perfect credit scores obtain relief at better interest rates and lower overall cost. That makes it a great alternative for folks who might not qualify for a traditional consolidation loan. However, there are some restrictions on who’s eligible to enroll, and most agencies charge a nominal monthly fee.

Note: Consolidation programs are also different from debt management plans. With a debt management plan, there is no true consolidation step. Instead, you pay a lump sum to your credit relief agency each month, and they distribute that cash to your various creditors. This may be a more accessible option for folks with severe debt. However, most debt management plans require you to close your credit cards as soon as they’re paid off and take out no new credit cards for the duration of the plan.

The pros of debt consolidation programs

• Interest rates are often relatively low
• The program includes personalized financial counseling
• Your credit counselor will hold you accountable to monthly payments, which helps some borrowers stay on track

The cons of debt consolidation programs

• Most nonprofits charge small monthly fees
• Contract terms tend to be long, which means more years until debt payoff
• Most agencies have some enrollment restriction

Option 3: DIY consolidation methods

There are a few other ways to do a debt consolidation on your own, without the help of an external lender or credit counseling agency.

• Balance-transfer credit cards: Many credit card companies offer balance-transfer cards with a low introductory rate. You can roll over other credit card balances to the new card, sometimes for a one-time balance transfer fee. If you can pay off the new card’s effective balance within the introductory period, you can save a lot of money on interest. If you miss that window, though, you could end up saddled with interest rates in the double digits.
• Cash-out refinancing: This option lets you refinance your home or car and reclaim some of your equity in the process. You can use this to pay off your consumer debt. Once that’s done, you’ll be left with a higher mortgage or car payment, but far fewer bills to worry about. The downsides: You’ll be limited by the amount of equity you currently have in that asset. And if you default, your home or car could be repossessed as collateral
• Home-equity loan: This option lets you leverage your home’s equity to get a new loan, which you can then use to pay off your consumer debts. However, if you fail to make your payments, your home could be forfeit.
• Personal loan: You can also take out an all-purpose personal loan and use it to do a DIY debt consolidation. Once you have the cash in hand, you’ll use it to pay off your creditors one by one. When that’s done, you’ll be left with just the single personal loan payment to make each month.

When DIY consolidation works best

The methods above are all great options if you have good personal discipline and a decent credit score. They’ll also be more effective if you already have a pretty good handle on your debt and aren’t grappling with huge balances.

Cash-out refinancing and home-equity loans will work best if you’ve already sunk significant equity in an asset like a home or car. And as with any new loan, you’ll need to meet your lender’s credit requirements to qualify.

Comparison chart: Which is right for you?

Here’s a side-by-side look at all the plans and programs we’ve discussed so far.

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Using online tools to compare options

If you’re not sure which path is right for you, try Payoff Path by Earnest1. This free tool helps you compare different payoff strategies side-by-side—loan, program, or DIY—and estimate your total cost and timeline.

See what fits your goals, and start simplifying your debt with a plan that truly works for you.

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About the Author

Corey Buhay

Corey Buhay is a writer and editor based in Boulder, Colorado. She’s passionate about literature, the outdoors, and doing her taxes by hand. She has been writing about student loans and personal finance for Earnest since 2019. You’ll find her work in Outside Magazine, Backpacker Magazine, Smithsonian, and The Denver Post.