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Consumer debt refers to any money you borrow for personal, family, or household purposes. It includes credit card debt, student loans, auto loans, mortgages, personal loans, and payday loans.

White “debt” can have negative connotations, having consumer debt isn’t necessarily a bad thing. Borrowing money allows you to achieve your goals, such as buying a house or going to college. However, consumer debt can become a burden if you borrow too much or for the wrong reasons.

Unfortunately, many Americans are currently saddled with high levels of debt. Total consumer debt hit a new record in the first quarter of 2025, ringing in at $18.203 trillion according to the New York Fed’s quarterly Household Debt and Credit Survey (HHDC). The average total consumer household debt, according to Experian, was $105,056 in 2024, a 13% uptick from 2020.

Here, take a closer look at the different types of consumer debt, including how each can help — or hurt — your finances, plus how to pay off high levels of consumer debt.

What Is Consumer Debt?

Consumer debt, as its name implies, is debt held by consumers, meaning private individuals as opposed to governments or businesses. It includes debts you may already have or might seek in the future — credit cards, student loans, auto loans, personal loans, and mortgages. It doesn’t include business loans or lines of credit or business credit cards.

Consumer debt products are offered by banks, credit unions, online lenders, and the federal government. They generally fall into two major categories: revolving debt and non-revolving debt.

With revolving debt, you repay your debt monthly (credit cards are a prime example). With non-revolving debt, you receive a loan in one lump sum and then repay it in fixed payments over a defined term. Non-revolving credit typically includes auto loans, student loans, mortgages, and personal loans.

Consumer debt can also be broken down into secured vs unsecured debt. Secured debt is debt backed by an asset (such as a home or car) used as collateral. If the loan isn’t paid back, the lender has the option to seize the asset. Unsecured debt, on the other hand, does not require collateral. The lender simply relies on the borrower’s ability to repay the loan.

Recommended: What Is a Credit Card Interest Cap?

The Different Types of Consumer Debt

Consumer debts vary widely in terms of how they work, their terms, and their impact on your financial well-being. Here a closer look at some of the most common types of consumer debt.

Mortgage Debt

Mortgage debt is the most common (as well as the largest) type of debt in the U.S. This type of consumer loan is used to purchase a home and the home is used as collateral.

Mortgages are installment loans, which means you pay them back in a set number of payments (installments) over the term of the loan, typically 15 or 30 years. Mortgage interest rates are usually lower than other types of consumer loans, and the interest may be tax deductible if you itemize your taxes.

If you make your payments on time, a mortgage can have a positive impact on your credit profile, since it shows you are a responsible borrower. If you stop making payments on a mortgage, however, it can negatively impact your credit. Plus, the lender can begin the foreclosure process, which typically includes seizing the property and selling it to recoup its losses.

Student Loan Debt

Student loans are unsecured installment debt used to pay for education expenses, such as tuition and room and board. They are offered by federal or private lenders and issued in one lump-sum payment. The borrower is then responsible for making repayments in regular amounts, typically after they graduate or are no longer in school.

Student loans are often one of the first debts consumers take on and can be an important way to build a positive credit history, provided you make on-time payments. Interest rates vary by lender. If you get a student loan from the U.S. Department of Education, the interest rate is set by the federal government and will remain fixed over the life of the loan.

Depending on your income, interest paid on student loans may be tax-deductible up to certain limits.

Auto Loan Debt

Auto loans are secured installment loans used to purchase a vehicle. These loans can have varying terms and interest rates, and the vehicle serves as collateral for the loan. You can get an auto loan through a bank or through a lender connected with a car dealership.

Unlike a house, a car depreciates in value over time. As a result, you, ideally, only want to take out financing for a vehicle if you can get a low interest rate. Some car companies offer low- or no-interest financing deals for individuals with good credit.

You get the proceeds of an auto loan in one lump sum then repay that amount, plus any interest, in a set number of payments (typically made monthly) over an agreed-upon period of time, often three to six years. If you stop making payments, the lender can repossess your car and sell it to get back its money.

Like other types of consumer loans, making on-time payments on your auto loan can help you build a positive credit history.

Personal Loans

Personal loans are consumer loans that individuals can use for a wide variety of purposes, such as debt consolidation, home improvements, or emergency expenses. You can get a personal loan with an online lender, bank, or credit union. They typically have fixed interest rates and set repayment terms, often one to seven years.

Personal loans are typically unsecured, meaning you don’t need to provide any collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

Once approved for a personal loan, you receive a lump sum (which can be anywhere from $1,000 to $50,000, $100,000, or more) and start paying it back, plus interest, in fixed monthly payments over the loan’s term. On-time loan payments can help build your credit, but missed payments can damage it.

Recommended: Typical Personal Loan Requirements Needed for Approval

Credit Card Debt

Credit card debt arises from using credit cards to make purchases or cover expenses. This type of debt is revolving, meaning you don’t have to pay it off at the end of the loan term (usually the end of the month). If you carry a balance from month to month, you pay interest on the outstanding amount.

Credit card debt is an unsecured loan, since it isn’t tied to a physical asset the lender can repossess to cover the debt if you don’t pay your bills. Interest rates vary depending on the card, your credit scores, and your history with the lender, but currently average around 24%.

To remain in good standing, you’re required to make a minimum payment on your balance each month. However, only paying the minimum allows interest to accrue, which can make the debt increasingly harder to pay off. As a result, credit card debt is often the most problematic type of debt for consumers.

A long history of making on-time payments can have a positive impact on your credit profile, while missing and late payments (and using a large amount of your available credit line) can have a negative impact on your credit.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Payday Loans

Payday loans are a type of short-term credit offered to consumers looking to get access to cash fast. Generally, these loans are for relatively small amounts of money ($500 or less) and must be repaid in a single payment on your next payday, hence the name. Payday loans are typically available through storefront payday lenders or online.

Although these fast-cash offers can be tempting, the high cost associated with them make them a last resort. A typical two-week payday loan will charge $15 for every $100 you borrow, which is the equivalent of a whopping 400% annual percentage rate (APR).

Generally, payday loans are not reported to the three major consumer credit bureaus, so they are unlikely to impact your credit scores.

Pros and Cons of Consumer Debt

There are both benefits and drawbacks to consumer debt. Here’s a look at how they stack up.

Pros of Consumer Debt

•   Access to immediate funds Consumer debt allows individuals to make large purchases (like a home or car) or cover expenses (like a college education) when they do not have the necessary cash on hand.

•   Building credit history Responsible borrowing and timely repayments can help establish and build an individual’s credit history and credit score.

•   Emergency financial support Consumer debt, such as a personal loan, can provide a safety net in unexpected situations when someone needs funds immediately.

Cons of Consumer Debt

•   High interest rates Many forms of consumer debt, such as credit card debt or payday loans, carry high interest rates, making them costly in the long run.

•   Risk of overborrowing Without careful financial planning, consumer debt can lead to excessive borrowing, making it difficult to manage monthly payments and potentially causing financial stress.

•   Negative impact on financial goals Excessive consumer debt can hinder individuals from achieving long-term financial goals, such as saving for retirement or buying a home.

Getting Out of Consumer Debt

To get out from under unhealthy levels of consumer debt, consider the following steps:

•   Assess your debts You might start by making a list of all your debts, noting balances, interest rates, and minimum monthly payments. This will allow you to see where you stand and make a plan for debt repayment.

•   Create a budget Next, you’ll want to assess your average monthly income and expenses to determine how much you can allocate towards debt repayment each month. At the same time, you may want to look for ways to cut back on nonessential spending; any funds you free up can go towards extra payments.

•   Prioritize repayment If you have multiple high-interest debts, you may want to focus on paying off the highest-interest debt first, while making minimum payments on other debts. Or, you might focus on repaying the debt with the smallest balance, making minimum payments on all your debts. Once that is paid off, you move on the next-highest balance.

•   Explore debt consolidation options Consider consolidating multiple debts into a single loan to simplify repayment and, ideally, save money. One way to do this is through a debt consolidation loan, a personal loan that may come with lower interest rates than your existing debts.

•   Negotiate with creditors Another option is to reach out to your creditors to see if you can negotiate lower interest rates, extended payment terms, or possible debt settlement options.

•   Seek professional help if needed If you are struggling with debt, you may want to consult a nonprofit credit counseling service. Credit counselors help you go over your debts to devise a plan for repayment, and they can also help you with budgeting and other personal finance basics.

The Takeaway

Consumer debt is debt you take on for personal, rather than business, reasons. But all consumer debt is not created equal. Some debts, such as mortgages or student loans, can be characterized as “good” debts, since they can benefit your long-term financial health. Other debts, like high-interest credit card debt or payday loans, on the other hand, can be considered “bad debts,” since they can put your financial health at risk.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

SoFi’s Personal Loan is cheaper, safer, and more predictable than credit cards.

FAQ

What is considered consumer debt?

Consumer debt is debt taken on for personal consumption vs. business or investment needs. It can include such things as credit card debt, student loans, mortgages, car loans, and personal loans.

Is a credit card a consumer loan?

No, a credit card is a revolving line of credit. A loan typically involves receiving a lump sum of cash and paying it back over time.

Is a credit card considered debt?

Yes, a credit card is a kind of debt. With a credit card, you are borrowing money from the card issuer to make a purchase. You then pay back the amount of the purchase, possibly plus interest and fees.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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Nondischargeable debt are debts that cannot be eliminated by bankruptcy. Typically, this kind of debt includes child support, alimony, student loans, and some tax bills, among others.

Though on the surface bankruptcy may appear to produce an opportunity for a fresh start, nondischargeable debts prevent it from being a true end-all solution to funds owed. Learn the details here.

What Does Nondischargeable Debt Include?

Nondischargeable debts can include home mortgages, certain taxes, child support, and student loans, and can vary based on the chapter of bankruptcy filed.

A debt may also be considered nondischargeable if a creditor formally objects to a discharge in court and wins.

When a debt is discharged through bankruptcy, the debtor is relieved of any legal obligation to pay it back, and the creditor is prevented from taking any further action to collect that debt. This includes contacting the debtor or filing a lawsuit.

Personal loans, credit card debt, and medical bills are types of debt generally considered dischargeable.

Nondischargeable debt, on the other hand, does not dissolve in a bankruptcy filing. The debtor remains liable for payment even after the filing is complete. These are types of debt that Congress has deemed unforgivable due to public policy.

Recommended: What Is the 10 Percent Credit Card Interest Rate Cap Act?

Types of Nondischargeable Debt

Nineteen categories of nondischargeable debt apply for Chapters 7, 11, and 12 of the Bankruptcy Code. (A more limited list of exceptions applies to cases under Chapter 13.)

Except in unique circumstances, if a debt falls under one of these categories, it is not considered dischargeable.

1. Debt incurred from U.S. taxes or a customs duty.

2. Debt for money, property, or services obtained fraudulently or under false pretenses.

3. Any debt excluded from bankruptcy filing paperwork (unless the missing creditor received prior notice and had ample time to respond to the filing).

4. Debt acquired due to fraud, larceny, or embezzlement while working as a fiduciary.

5. Debt contracted for a domestic support obligation, including child support and alimony.

6. Debt from intentionally harming another person or their property.

7. Tax debt as a result of a fine, penalty or forfeiture that is, at minimum, 3 years old.

8. Student loan debt (unless not discharging the debt would impose an “undue hardship”).

9. Debt incurred due to the death or injury of someone caused by the debtor while operating a vehicle, vessel, or aircraft while intoxicated.

10. Any debts that were or could have been listed in a prior bankruptcy filing, and the debtor waived or was denied a discharge.

11. Debt obtained by committing fraud or misappropriating funds while acting as a fiduciary at a bank or credit union.

12. Debt incurred for the malicious or reckless failure of a debtor to fulfill any commitment to a federal depository.

13. Debts for any orders of restitution.

14. Debt incurred by penalty in relation to U.S. taxes.

15. Any debt to a spouse, former spouse, or child that is incurred through a separation or divorce.

16. Debts incurred due to condominium ownership or homeowners association fees.

17. Legal fees imposed on a prisoner by a court for costs and expenses related to a filing.

18. Debts owed to a pension, profit-sharing, stock bonus, or another retirement plan, as well as any loans taken from an individual retirement annuity.

19. Debt obtained for violating federal or state securities laws, common law, or deceit and manipulation in connection with the purchase or sale of any security.

Recommended: Paying Tax on Personal Loans

How Will Nondischargeable Debt Affect Me?

Nondischargeable debt is just like any other debt in the sense that it must be paid off on time to avoid negative consequences.

If a debt is left unpaid for too long, the creditor may sell the debt to a collection agency, which then may result in any number of the following repercussions:

•   Significantly lowering a credit score

•   Flagging a borrower as “high risk” to future lenders

•   Decreasing the odds of approval for future credit offerings

•   Increasing high-interest rate offers with less favorable terms

•   Adding negative remarks to your credit history

•   Activating a lien against a property or asset

•   Prompting creditors to pursue legal action

•   Enacting wage or asset garnishment

How Can I Resolve Nondischargeable Debts?

Making plans to resolve any outstanding debts as soon as possible is key to managing a credit history and salvaging future credit opportunities. Here are strategies for paying off debts to consider.

Stop Using Credit

The first step toward debt resolution is to stop accruing it. Many people rely on credit cards, with the average American having almost $6,500 in debt as of February 2025, according to TransUnion®, one of the major credit bureaus.

Making a point not to purchase anything that can’t be bought with cash outright can help curb unnecessary expenses. This includes larger purchases that may require financing. Leaving credit cards at home and removing their information from online payment systems can also help remove the temptation of using them.

Create a Budget

According to a 2024 Debt.com survey, 89% of Americans said making a budget helped them get out of or stay out of debt.

A monthly plan including income and expenses can help reveal where extra money might be coming in and where you can cut back on unnecessary spending. A plan will provide a holistic view of spending habits, allowing for larger decisions to be made about how to change habits in order to fit new, debt-focused priorities.

Cutting back on expenses and carefully tracking spending can help reveal extra dollars and cents needed to pay down debts.

Start a Part-Time Job

When paying down debt is a top priority, taking on another job or picking up additional hours at your current one can be extremely helpful.

An extra check here and there can provide funds to make additional payments on debts, helping to dissolve them more quickly. Consider options such as working weekends at a local coffee shop, picking up a temporary gig in food delivery, or freelancing for additional income.

Recommended: 19 Jobs That Pay Daily

Consolidate Debt

Applying for a personal loan is a strategy for managing several debts simultaneously. Though it may seem counterintuitive to take on another loan, a personal loan can be used to pay off multiple existing lines of credit, such as credit cards, and consolidate them into one loan with a single monthly payment and, possibly, a lower interest rate.

In addition to comparing rates, it’s important to make sure you understand how a new loan could benefit you in the long run. For instance, if your monthly payment is lower because the loan term is longer, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

However, a debt consolidation loan could help streamline payments and ease the anxiety that comes with being responsible for managing numerous lines of credit.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

The Takeaway

Nondischargeable debts cannot be eliminated by bankruptcy, and without proper management, they could worsen your current financial situation. Like any other debt, nondischargeable debt must be paid off on time in order to avoid negative repercussions. Creating a plan to handle outstanding debts as soon as possible is a smart choice. A personal loan is one option to consider in this situation.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What does it mean if a debt is non-dischargeable?

Non-dischargeable debt is debt that cannot be eliminated by bankruptcy.

What type of debt cannot be discharged?

Debts that cannot be discharged in bankruptcy include alimony, child support, most types of taxes, most student loans, and debt resulting from fraud and other criminal activity.

How do I remove discharged debt from my credit report?

If discharged debt is still on your credit report, you will have to contact each of the big three credit reporting bureaus and file a dispute, giving information to verify that the item(s) should be removed.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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If you’re repaying a variety of different debts to different lenders, keeping track of them and making payments on time each month can be time consuming. It isn’t just tough to keep track of these various debts, it’s also difficult to know which debts to prioritize in order to fast track your debt repayment. After all, each of your cards or loans likely have different interest rates, minimum payments, payment due dates, and loan terms.

Consolidating — or combining — your debts into a new, single loan may give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit (ideally with a lower interest rate) and using it to pay off other debts — whether that’s car loans, credit card debt, or another type of debt. After consolidating those existing loans into one loan, you have just one monthly payment and one interest rate.


💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and what type of debt you wish to consolidate. Here are some common approaches.

Balance Transfer

If you are able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card may be one option to consider and can be a smart financial strategy to consolidate debt if you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates are typically for a limited time, so if you pay the transferred balance in full before it ends, you’ll reap the benefit of paying less — or possibly zero — interest.

However, there are some caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, sometimes 3% to 5% of the amount transferred. If you use the credit card for new purchases, the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it will be subject to the new, regular rate.

Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s value minus the amount remaining on your mortgage. If your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV is similar to equity, but on the other side of the scale: Instead of how much you own, it’s how much you owe. The percentage is calculated by dividing the home’s appraised value by the remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no more than 80%. In the above example, the LTV would be 42%.

$125,000 / $300,000 = 0.42
(To express this as a percentage, multiply 0.42 x 100 to get 42%.)

If you qualify for a home equity loan, you’ll typically be able to tap into 75% to 80% of your equity.

After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay your other debts.

A home equity loan is essentially a second mortgage, a secured loan using your home as collateral. Since there is a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into or you prefer not to put your home up as collateral, a personal loan may be another option to consider.

There are many types of personal loans, but they are typically unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s fairly easy to find a lender that offers fixed-rate personal loans.

Generally, personal loans offer lower interest rates than credit cards. So consolidating credit card debt with a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there is a payment end date, unlike the revolving nature of credit cards.

There are many online personal loan lenders and the application process tends to be fairly simple. You may be able to use a loan comparison site to see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard credit inquiry into your credit report, which may temporarily lower your credit score. The lower credit score may drop off your credit report in a few months.

If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay off your other debts. You’ll then be responsible for paying the monthly personal loan payment.

A drawback to using a personal loan for debt consolidation is that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. Other fees may also be charged, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees or penalties before signing the loan agreement.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

Is Debt Consolidation Right For You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea If …

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. Using a home equity loan or a personal loan for debt consolidation will be useful for this reason because they are forms of installment debt.

•   You can qualify for a zero interest or low-interest rate balance transfer credit card. This may allow you to consolidate multiple debts on one new credit card and save interest by paying off the balance before the promotional rate ends.

Debt Consolidation Might Not Be For You If …

•   You think you’ll be tempted to continue using the credit cards you paid off in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fee or origination fee). If the fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period of time and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt with No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and are vulnerable.

Disreputable debt settlement companies may charge fees before ever settling your debt and often make bogus claims, such as guaranteeing that they will be able to make your debt go away or that there is a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences to your credit along the way. What’s more, a debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Recommended: Debt Settlement vs Credit Counseling: What’s the Difference?

Debt Relief: Is it a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get some assistance that will help you get out of debt for good and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, like credit cards, into a new loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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Spending is on the rise — and so is consumer debt. Americans carry, on average, three credit cards and have $6,501 in credit card debt. Overall, U.S. credit card debt is $129 billion higher than it was one year ago.

That amount of debt can be a challenge to pay down along with regular monthly household expenses. Some people may choose to refinance their high-interest credit card debt in an effort to secure a lower interest rate or a lower monthly payment. Refinancing credit card debt can be one way to make progress toward eliminating it completely.

What Is Credit Card Debt?

If you’re putting more purchases on credit cards than you can pay off in a monthly billing cycle, you have credit card debt.

Interest will accrue on the balance that carries over to the next billing cycle. If you don’t pay at least the minimum amount due, you’ll likely also be charged a late fee. Since credit cards use compound interest, you’ll be charged interest on accrued interest and fees. That can add up quickly and make it more difficult to get out of debt.

Carrying a balance on more than one credit card can make the debt even more difficult to manage. If your goal is to be free of credit card debt, refinancing can be one way to achieve that.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

What Are Some Benefits of Refinancing Credit Card Debt?

Credit cards are revolving debt and typically have variable annual percentage rates (APRs).

Refinancing credit card debt with an installment loan that has a fixed interest rate, such as a personal loan, will mean you’ll have a fixed end date to your debt and will have the same APR for the entire term of the loan.

If you’re refinancing multiple credit card balances into one new loan or line of credit, you’ll have fewer bills to pay each month. That could potentially make monthly budgeting a simpler task.

Recommended: What Is a Good APR for a Credit Card?

How Might Debt Refinancing Affect Your Credit Score?

Something to keep in mind when your goal is to pay down debt is that it’s a long game.

That being said, in the short term your credit score can decrease slightly when you apply for new credit and the lender looks at your credit report. During the formal application process, the lender will perform a hard inquiry into your credit report, which may result in a slight temporary drop of your credit score.

If you’re comparing multiple lenders, and they offer prequalification, they’ll do a soft inquiry into your credit report, which won’t affect your credit score.

Building your credit — or rebuilding it — through refinancing credit card debt can be possible if you make on-time, regular payments on the new loan. Reducing your credit utilization can be another positive result of refinancing credit card debt. Both of these can potentially increase your credit score.

It’s important not to overuse the credit cards you refinanced into a new loan, however, or you might accumulate even more debt than you started with.

Will Canceling My Unused Credit Cards Affect my Credit Score?

After you’ve refinanced your existing credit card debt into a new loan, you might be tempted to cancel those credit cards. But that strategy could negatively affect your credit score.

Whether it’s a good idea to cancel a credit card really depends on the card. If you’ve had the credit card for a long time, closing it would shorten your credit history, which could result in a credit score drop. But if it’s a card you genuinely don’t have a reason to keep, such as a retail card for a store you no longer shop at or a card that has a high annual fee that can’t be justified with your current spending habits, closing the account might be the right step for you.

If you plan to keep a credit card open, it may be a good idea to use it for a small, recurring charge so the card issuer doesn’t close it for inactivity. Setting up autopay can make this a convenient way to ensure the card stays open but is paid in full each month.

What Are Some Options for Refinancing Credit Card Debt?

Your overall creditworthiness will be a determining factor in finding available refinancing options. Lenders will look at your credit report and credit score, paying attention to how you’ve handled credit in the past and how much total debt you have in relation to your income.

Balance Transfer Credit Card

If you can qualify for a low- or no-interest credit card, you could use it to transfer a balance from another credit card. You’ll typically be charged a balance transfer fee equal to a percentage of the balance you’re transferring. The promotional rate on these types of cards is temporary, sometimes lasting up to 18 months or so, but can be as short as 6 months.

If you pay the transferred balance in full within the promotional period, you may not pay any interest at all, or a minimal amount. However, if you still have an outstanding balance on the card when the promotional period is over, the APR will revert to the card’s standard rate for balance transfers.

Home Equity Loan

A potential source of refinancing funds might be your home, if you have equity in it. Funds from a home equity loan can be used for just about anything, even things unrelated to your home. You can calculate how much equity you have in your home by subtracting the amount you owe on your mortgage from the current market value of your home.

In addition to the amount of equity you have in your home, lenders will typically also look at your income and your credit history to determine how much you might qualify for. It’s common for lenders to limit a home equity loan to no more than 80% to 85% of the equity you have in your home. There are typically closing costs with a home equity loan including appraisal fee, title search, origination fee, or other fees, and can be between 2% and 5% of the loan amount.

A home equity loan is a second mortgage secured by your home. If you fail to repay the loan, the lender can foreclose on your home.

Debt Consolidation Loan

Some lenders offer loans specifically for debt consolidation. These are actually personal loans, the funds from which can be used to pay off your existing credit card debt. Then, you’ll be responsible for repaying the debt consolidation loan. There may be fees charged on this type of loan, so be sure to look over the loan agreement carefully before signing it.

For a credit card consolidation loan to be as effective as possible at reducing your debt, it will ideally have a lower APR than you’re paying on your credit cards. In this way, you would be paying less in interest over the life of the loan. If a lower monthly payment is your goal, you may opt for a longer-term loan, but may pay a higher interest rate.

Recommended: How to Get a Debt Consolidation Loan with Bad Credit

The Takeaway

If your credit card debt is piling up and you’re finding it challenging to pay it down, you may be considering refinancing. Some credit card refinancing options include balance transfer credit cards with a promotional APR, a home equity loan, or a debt consolidation loan.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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