How Much Debt Do You Need to Consolidate? [2024] (2024)

FAQs

How much debt is too much to consolidate? ›

On the other end of the spectrum, if your total debt is more than half of your income, consolidation may not be the best option.

Generally, borrowers with scores of 740 or higher will receive the best interest rates, followed by those in the 739 to 670 range. If your credit score is lower than 670, debt consolidation may not be a good option for you. Consolidating debt when you have bad credit can be challenging.

Since January 2022, we have helped more than 18,600 borrowers secure debt consolidation loans, with prequalified offers ranging from $500 to $50,000.

Key takeaways. Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.

PNC Bank is a major brick-and-mortar financial institution that offers debt consolidation loans online with no collateral required. PNC Bank personal loans have no application or origination fees. Borrowers can lock in a 0.25% rate discount for making automatic loan payments from a PNC checking account.

This can result in a tricky situation -- since debt consolidation loans are like any other personal loans, the lender checks your credit score to determine your creditworthiness. On average, lenders usually expect a credit score of around 650 to extend a debt consolidation loan.

If you have excellent credit, high income and are borrowing a relatively small amount of money, it can be easy to get approved for a debt consolidation loan. On the other hand, if you have poor credit, low income and are applying for a large loan, it may be difficult to get approved.

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

What is the disadvantage of debt consolidation? ›

You can afford to repay the loan: A debt consolidation loan will only benefit you if you can afford to repay it. You'll risk getting into a deeper debt cycle if you're not 100 percent sure you'll be able to afford the monthly payment down the road.

If you have a part-time job, freelance work or savings you can tap to make the payments, then consolidation could be right for you. On the other hand, if your bank accounts are in overdraft and you don't have any source of funds, consolidation won't work.

$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt.

Combining multiple outstanding debts into a single loan reduces the number of payments and interest rates you have to worry about. Consolidation can also improve your credit by reducing the chances of making a late payment—or missing a payment entirely.

Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high. The biggest piece of your DTI ratio pie is bound to be your monthly mortgage payment.

Having any credit card debt can be stressful, but $10,000 in credit card debt is a different level of stress. The average credit card interest rate is over 20%, so interest charges alone will take up a large chunk of your payments. On $10,000 in balances, you could end up paying over $2,000 per year in interest.