Pros and Cons of Consolidating Debt with an Unsecured Loan

Thinking of consolidating your debt with an unsecured consolidation loan? Here are a few things to keep in mind as you weigh your options:


Fewer monthly payments

By combining multiple debts into one consolidation loan, you’ll have fewer debts and debt payments to manage each month.

Fixed end date

If you’re only paying the minimum due on a large credit card debt, you could literally be paying for decades. Most loans usually have a clearly defined payment schedule, which spells out what you’ll pay, when it’s due, how much will go toward the principle, and when you’ll have the whole thing paid off.

Lower interest rate

Interest rates on loans, credit cards, and other financial products will vary depending on a lot of factors, but on the average, the rates for personal loans are around 50 percent lower than the rates for credit cards. That can make a difference in savings over the life of the debt. Make sure you really are getting a better rate than what you already have by using our calculator to determine the weighted average interest rate across all your creditor accounts.


Best credit gets the best terms

If you’ve already missed a few payments and your credit score has suffered as a result, you may find it hard to qualify for loans with low interest rates and other helpful terms.

Having fewer open accounts may ding your credit

One factor in most credit scoring models is your length of credit history. When you close multiple old accounts in favor of one new account, that could potentially lower your score. That’s only if your lender requires you to close your old accounts, which isn’t a guarantee.

Less flexibility

With a debt consolidation loan you’ll have fewer payments to manage, but that one new payment will likely be bigger than any one payment you had before. As a result, you may lose a little flexibility should funds become tight one month and you have to decide which bills to pay and which to skip.

Upfront fees

Most loans include a variety of fees. Keep in mind the costs of taking out a loan in the first place.

  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.