Paying down debt can be both expensive and exhausting — especially when you have multiple debts to account for each month. And with the added stress of interest rates that are higher than you'd like, it can feel like you'll never be debt-free.
There are lots of popular debt pay off strategies, like the snowball method or the avalanche method. But another common tactic for becoming debt-free a little faster is through debt consolidation — and using a personal loan to do it makes the process as painless as possible.
What is debt consolidation?
Debt consolidation is the process of taking multiple debts — like credit card debts or multiple student loan debts — and "rolling" them into one debt with one monthly payment and one interest rate. You may also typically receive a lower interest rate when you consolidate your debt, so this strategy also makes sense if you want to save on interest charges.
How does debt consolidation work?
One way to consolidate multiple debts is to use a personal loan. When you apply for a personal loan, you apply for a lump sum of money that typically gets deposited into your bank account so you can use it as needed.
When using a personal loan for debt consolidation, though, the lender may make a direct payment to the lenders who hold your other debts. Then, you'll only be responsible for paying back the new personal loan at a fixed monthly payment and a new interest rate.
Often times, this interest rate is lower than the rates you've been paying on your other debts. A lower interest rate means you'll spend less money on payments over the lifetime of the loan. And, you may actually pay off the loan faster since it may buy you more room to put a little extra cash toward the principal.
Of course, though, the interest rate you receive will depend on your creditworthiness. In other words, a higher credit score can get you a lower interest rate and a poor credit score can leave you with an interest rate on the higher end of a lender's range.
And since you're essentially "replacing" your multiple debts with one new loan when you consolidate, you'll only have to worry about making one monthly payment — as opposed to just chipping away slowly at various debts. If the personal loan you used to consolidate the debts doesn't have a prepayment penalty (a.k.a., an early payoff fee), you might consider taking the same amount of money you would have paid for all your debts and throwing it all at the personal loan payment. This can help you pay back the loan even quicker (and save even more on interest charges).
Again, though, the key here is to look for personal loan lenders that don't charge a prepayment penalty. This is an additional fee charged by some lenders if you pay off your loan early. The actual cost of a prepayment penalty will vary depending on how it's being charged. It can be charged as a percentage of your loan balance, as a fixed fee, or as the amount of interest a lender would miss out on since you've paid off the loan early. As a result, a prepayment penalty could cost you big time.
Debt consolidation loans with no prepayment penalty
SoFi Personal Loans, which is on our list of best personal loans to consolidate debt, allows you to consolidate different kinds of debt — including student loan debt. In addition to no prepayment penalty, this lender also doesn't charge a late fee or require origination fees, making it a bit more affordable to use compared to lenders who do charge these fees. Keep in mind, though, that you'll generally need a good or excellent credit score to qualify.
No origination fees required, no early payoff fees, no late fees
- No origination fees required, no early payoff fees, no late fees
- Unemployment protection if you lose your job
- DACA recipients can apply with a creditworthy co-borrower who is a U.S. citizen/permanent resident by calling 877-936-2269
- Can have more than one SoFi loan at a time (state-permitting)
- May accept offer of employment (to start within the next 90 days) as proof of income
- Co-applicants may apply
- Applicants who are U.S. visa holders must have more than two years remaining on visa to be eligible
- No co-signers allowed (co-applicants only)
Fixed rates from 8.74% APR to 35.49% APR. APR reflect the 0.25% autopay interest rate discount and a 0.25% SoFi Plus interest rate discount. SoFi Platform personal loans are made either by SoFi Bank, N.A. or, Cross River Bank, a New Jersey State Chartered Commercial Bank, operating from its Delaware branch, Member FDIC, Equal Housing Lender. SoFi may receive compensation if you take out a loan originated by Cross River Bank. These rate ranges are current as of 02/23/26 and are subject to change without notice. Not all rates and amounts available in all states. See SoFi Personal Loan eligibility details at https://www.sofi.com/eligibility-criteria/#eligibility-personal. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors.
If your credit score is closer to average, you can still qualify for an Upstart Personal Loan. Upstart generally requires a 300 score but still accepts applicants with insufficient credit history. It can be used for debt consolidation and there's no early pay off fee, however, there is an origination fee — it'll run you 0% to 12% of the loan amount. There is also a late fee, which would be either 5% of the amount due or $15, whichever is greater.
Upstart offers accessible personal loans for people with fair or average credit.
- Accept applicants with low or no credit
- No early payoff fees
- Most loans funded the next business day
- High late fees
- Origination fee of 0% to 10% of the target amount
- $10 fee for paper copies of loan agreement
And like SoFi, Happy Money does not charge early payoff fees, though there's an origination fee of up to 5.5% based on your credit score and application. This lender will send payments directly to creditors so you don't have to worry about doing the heavy-lifting.
Peer-to-peer lending platform makes it easy to check multiple offers
- Peer-to-peer lending platform makes it easy to check multiple offers
- Loan approval comes with Happy Money membership and customer support
- No early payoff fees
- Fast and easy application
- U.S.-based customer service
- Higher loan minimums ($5,000)
- Must submit soft inquiry to see origination fees and other details
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Bottom line
Debt consolidation can be a handy strategy for paying off multiple debts as quickly (and as affordably) as possible. This can be especially true if the personal loan you use to consolidate your debts doesn't charge you a penalty for paying back the balance early. But most importantly, you should always make sure that personal loans fit your personal needs before you sign up for one.
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