Key takeaways

  • Research different types of lenders, including banks, online lenders and credit unions.
  • Prequalify with at least three lenders to compare rates and terms you might receive once approved.
  • After shopping around, submit a formal loan application with the lender that best matches your needs.

Like any loan, debt consolidation loans require you to fill out an application and submit information about yourself and your finances. The process usually takes no more than a few days if you have everything ready to go. And once you submit an application, it may be only a week or two before your debt is consolidated and you’re making payments to your new lender.

Step 1: Gather info on your current debts

If you don’t already have a list of your current debts, start a spreadsheet. You’ll need to include some important information about each:

  • Original principal balance, if applicable.
  • Current amount owed.
  • Payoff amount, if different from amount owed.
  • Interest rate and annual percentage rate (APR).
  • Loan term, if applicable.
  • Prepayment penalties, if applicable.
  • Creditor.

This information will be important when you apply for a debt consolidation loan and when you are ready to pay your creditors.

Step 2: Research lenders

Debt consolidation is one of the more common ways to use a personal loan, so you can find a variety of lenders that offer them. Banks, online lenders and credit unions offer similar loan products.


Banks are the most traditional source for personal loans — but not every bank has them. When you’re looking to consolidate your debt, you may need to work with a bank where you don’t have an account. This is not uncommon, but it could mean you miss out on relationship benefits the bank may offer.

Online lenders

Online lenders offer a variety of debt consolidation loans. Because there are options for borrowers with a range of credit profiles, you should be able to find a lender that suits your needs. But like with any loan, you’ll need to have excellent credit and sufficient income in order to qualify for the lowest rates.

Credit unions

Credit unions require you to have an account to qualify for any loan, including loans for debt consolidation. This means checking if you are eligible for membership and putting down some money to open a checking account. However, credit unions tend to have lower rates and more lenient criteria than banks and some online lenders.

Step 3: Prequalify with a few lenders

Many lenders offer prequalification. This allows you to submit your information and see what rates you qualify for without affecting your credit score. While the numbers are subject to change — and approval isn’t guaranteed until you submit a full application — prequalifying is a great way to compare lenders.

And you should be comparing lenders. The prequalification process is how you can determine what lender offers the best rates, terms and services. Apply with at least three lenders that offer debt consolidation loans for people with your credit score. The more you do upfront, the better your chances of scoring a competitive rate on your debt consolidation.

Step 4: Choose a lender and apply

You likely submitted basic information like your income, contact details and a list of debts when you applied for prequalification. To finalize your application, your lender will require you to submit a few pieces of information, including:

  • Proof of identity.
  • Proof of income.
  • Documentation on your current debts.

Other information may also be required. During this step, you will be in close contact with your lender to finalize your information. Your lender will run a hard credit check — which can temporarily lower your score — to determine final approval. Once everything is submitted and your are approved, you will sign your loan documents.

Step 5: Receive funds and start making payments

Once you finalize your loan documents with your lenders, there are two ways to consolidate your debt: your lender pays your creditors or gives you the funds to do so.

You’ll then start making payments on your new loan. Your lender will provide you with your amortization schedule. And since most lenders don’t charge a prepayment penalty, you can make additional payments to reduce the total amount of interest you pay — and pay off your loan faster.

Your lender pays your debts

In many cases, your debt consolidation lender may act as the middleman between you and your current creditors. It will pay them directly, which means it will need access to your accounts. Follow up with your creditors to ensure every balance is paid in full and that your loans and credit cards are closed out.

You pay your debts

You will need to request the payoff amount for each of your loans and credit cards from your current creditors. When the funds from your debt consolidation loan are in your account, you will pay your creditors directly.

It is critical that you move fast. Otherwise, you will pay interest on your debt consolidation loan and any accounts you still have open.

Debt consolidation won’t fix underlying problems

Debt consolidation helps streamline your monthly payments. Plus, if you qualify for a lower rate than the average rate on your existing debt, you can save hundreds of dollars in interest.

But before you take out a debt consolidation loan, review your budget to identify why you went into debt in the first place. Consolidating debt won’t solve an overspending problem. For it to work, you’ll need to avoid taking on new loans or using your credit cards while repaying the debt consolidation loan.