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7 Best Ways to Consolidate Unsecured Debt

Consolidating debt shouldn’t be complicated. If you read my 5 Steps to Become Debt-Free article, you will recognize that debt consolidation is my most recommended way to becoming debt-free. In this guide, I have put together the seven best ways to consolidate debt so that you can start consolidating debt today.



  1. Personal Loan
  2. Balance Transfer
  3. First Mortgage Refinance
  4. Home Equity Loan or HELOC
  5. Cash-Out Auto Refinance
  6. Debt Management Program (DMP)
  7. Peer-to-Peer (P2P) Lending


Why Consolidate Debt?


There are plenty of reasons why you should consolidate debt.

  • Reduce the number of monthly payments
  • Reduce the total amount of interest paid
  • Become debt-free faster
  • Lower interest rates
  • More available cash


You don’t want to owe debt forever. At some point in your life, you want zero debt to enjoy the other things in life, such as retirement. Outstanding debt can be overwhelming if you are unaware of how much you are spending.


Stop wasting time and take control of your debts. It’s only a matter of time and commitment before you are debt-free.


Here are my seven best ways to consolidate debt.


Personal loan


Why should I consolidate debt with a personal loan?


I put a personal loan as the first option on this list because you are probably looking to consolidate debt quickly.


The turnaround time for a personal loan can be 1-7 days on average. It doesn’t get much faster than that. The quicker debt is consolidated, the more you are saving on the amount of interest you are paying.


With no collateral being promised to the creditor, the underwriting steps involved are much less than a mortgage or auto.



  • Quick fundings
  • One payment
  • No collateral
  • Lower rates
  • Flexibility
  • Easy to manage


  • Not the lowest rates possible
  • Shorter terms
  • High monthly payment
  • Possible early payoff penalty fee
  • Lower max loan amounts


Personal loans are lovely if your total amount of unsecured debt is below $50,000 and you want to merge all those liabilities into one payment.


Also, personal loans can benefit if your planned timeline for repaying the loan is around five years or less. I recommend exploring a personal loan if you are searching to consolidate debt.


Balance Transfer


Balance transfers are another solution for faster debt consolidation. Not only is it a time-saver, but you can also take advantage of zero percent intro rates.


You must be careful with balance transfers because there are drawbacks if you don’t remain diligent.



  • Save on interest
  • Reduce the number of credit cards with balances
  • Credit score boost with more available credit


  • Transfer fee
  • Temporary intro rate
  • Debt could increase
  • Credit score may not qualify


While the balance transfer may fit some, it won’t be for others. The key to a balance transfer is not putting any new balances on the credit cards and paying them off before the intro rate period ends.


Before diving into a balance transfer, you should evaluate your expenses and determine if you can avoid racking up additional debt after the balance transfer.


It would be catastrophic if you racked up more debt while trying to consolidate. You would ultimately put yourself in a worse situation.


First Mortgage Refinance


Do you have tens of thousands of dollars of unsecured debt? Is the amount of unsecured debt more than the max a lender offers for personal loans?


Don’t worry; there are other methods than just a personal loan or balance transfer to work your way into becoming debt-free.


Another alternative to consolidating a large sum of unsecured debt is to refinance your first mortgage if you are a homeowner.



  • Lower interest rates
  • Less total interest paid after consolidating
  • Escrow
  • Lower the number of monthly payments
  • Longer terms for a lower monthly payment
  • Higher max loan amounts


  • It can take 30+ days to be approved
  • Using the home as collateral
  • Closing costs
  • Not the quickest way to become debt-free.
  • Need to have enough equity in the home
  • Higher monthly mortgage payment
  • Need good credit typically.


If you already refinanced for a super low rate in 2020 or 2021, you may not want to refinance with first mortgage rates rising. That’s because you could pay more interest on the property since it is a large loan. With inflation extremely high, no one knows if interest rates will ever dip that low again.


Home Equity Loan or HELOC


If your first mortgage interest rate is already low from the rate slashes due to COVID, then you can certainly tap into your home’s equity.



  • Fixed rates for home equity loans
  • Intro fixed rates for HELOCs
  • Variety of uses
  • Possibly tax-deductible.



  • It can take 30+ days to be approved
  • Using the home as collateral
  • Closing costs
  • Not the quickest way to become debt-free.
  • Need to have enough equity in the home
  • Additional monthly mortgage payment
  • Higher variable rate for HELOCs
  • Need good credit typically.


Home equity loans operate the same way a personal loan does. Except a second lien is being placed on your home. It’s one lump sum of funds that you will repay the entire principal and interest at a set rate, term, and monthly payment.


HELOCs are revolving lines of credit that you can withdraw funds as you need up to a specific limit. There is usually a limited time draw period before the HELOC matures into a loan. During that draw period, your payments might only need to cover the interest owed based on what you have borrowed.


While home equities are not the fastest way to become debt-free, the usefulness they provide is unparalleled. Speak with your financial institution if you believe a second mortgage is right for you.


Cash-Out Auto Refinance


Another solution to consolidate debt and work towards becoming debt-free is a cash-out auto refinance.



  • Lower interest rates
  • Reduce the number of monthly payments


  • Maybe upside down with your car loan.
  • Car used as collateral


This option isn’t as common as the options listed above, but it is still an option if it makes sense. There are a few main reasons vehicles are used for collateral.


  • Struggling to make payments for multiple liabilities.
  • Lower rate.
  • Boosting credit score.
  • Lowering monthly payment.
  • Pay debt off faster under one loan.


These are just a few reasons someone may do a cash-out auto refinance.


Debt Management Program (DMP)


A debt management plan (DMP) is a plan to eliminate your highest interest unsecured debt. DMPs help educate people on managing debt and reduce interest rates on credit cards.


Nonprofit credit counseling agencies operate DMPs. These agencies analyze your income and expenses to create a budget. The monthly DMP payment is designed to be affordable to you.


The DMP is then presented to credit card companies which must approve it.



  • Consolidate debt without taking on new debts
  • Organization
  • Monthly budgeting to avoid late fees and track spending
  • Boost credit score
  • Professional advice
  • Close unnecessary credit cards faster
  • Avoid new debts



  • Commitment
  • Discipline
  • Possible early payoff penalties if consolidating
  • Fees associated with the DMP assisting
  • Creditors may reject the DMP
  • Payment deadlines


Enrolling in a DMP means depositing money monthly to the organization by a specific deadline. The organization uses the deposited funds to pay debts according to the established DMP.


On-time credit payments are critical. It accounts for 35% of your FICO credit score. DMPs are great for improving credit because they make on-time payments for you.


DMPs are not for everyone. It requires consistent income to be successful. You must also be aware of scams since nonprofit organizations run DMPs. Please research or reach out to a legal advisor if you are uncertain about a company.


Peer-to-Peer (P2P) Lending


Have you ever considered getting a consolidation loan without going through a financial institution? Peer-to-peer (P2P) lending offers just that. P2P lending enables you to remove financial institutions as the middleman.


P2P lending has only been around since 2005. Is P2P lending safe? How can you get a loan without going through a financial institution?


P2P lending is a financial technology (Fintech) that connects borrowers to investors through a website.



  • Eliminate banks as middlemen
  • Turnaround time



  • Higher interest rates
  • Riskier
  • Fees


P2P lending is last on this list because it is possible to get a lower rate if your credit and income qualify. But the high-interest rate risk makes the debt consolidation options above more appealing, and I recommend exploring those first.


Nick Miller

Website Founder

Nick Miller

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