Last updated: February 19, 2024

Managing Debt

4 ways to consolidate your debt

Young woman looking at her longstanding debt considering the best way to consolidate it.

How to consolidate debt and start saving

Getting a handle on your finances often involves consolidating debt so that your payments are more manageable, and you can work paying those balances down.

The good news is that you have time to work on reigning in your spending and consolidating debt.  When considering the question: How do I consolidate debt and start saving? reducing your monthly spending to an amount within your means is an important step toward finding the answer.

What is debt consolidation?

To consolidate your debts, you will want to bring all your various debts together into a single bill. The standard ways to do this are through loans that pay off your debts and create a single repayment program, or with balance transfer credit cards that make it possible for you to move existing debts to a single card.

In both cases, your goal is to both simplify the number of bills you must pay attention to each month, while also reducing the amount of interest you pay each month on the debt.

Check out 4 options for managing your debt with Discover®:

  Credit score requirements Maximum amount Annual Percentage Rate (APR)
Balance transfer credit card Good credit scores may receive low APR introductory offers Your credit limit determines the amount you can transfer from other credit cards Compare current APRs and credit card offers from Discover
Personal loan Good credit may earn lower interest rates and higher loan limits From $2,500 to $40,000 depending on your credit profile View current APR range from Discover Personal Loans
Home equity loan Good credit may earn lower interest rates From $35,000 - $300,000 up to a 90% combined loan-to-value (CLTV) for qualified homeowners View current rates for first and second liens with Discover Home Loans
Cash out refinance Good credit may earn lower interest rates From $35,000 - $300,000 up to a 90% combined loan-to-value (CLTV) for qualified homeowners View current rates for first and second liens with Discover Home Loans


Balance transfers to credit cards

If you have only a small amount of debt, you might be able to pay it off through a balance transfer to a new or existing credit card. You may even have an existing card or be able to find a new one that offers  low APR on balance transfers for a limited term.

Shifting debt to a new card works the best if you get a better rate, stop spending on your existing card and pay off your debt within the  low APR term. You will likely be charged interest on the transfer if any of that amount remains past the initial 0% APR term, which could cause a financial hit down the road.

If you have good credit, then you might be able to qualify for a lower interest rate on a personal or home equity loan, which typically makes them a better vehicle for consolidating larger debts.

Personal loans

A personal loan is one of the most common tools used to consolidate personal debt. Personal loans typically don’t require any collateral, so your rate is largely dependent upon your personal credit history. The APR on some of these loans may be relatively high compared to other types of loans depending on the lender you choose and your credit details. If you have a less than stellar credit rating, or you want to borrow more than the typical personal loan lender can provide, there may be additional options.

Home equity loans

Your home equity may be a lifeline to getting back in fit financial shape.

Suitable for larger debts, long-term expenses, and other large expenses like home improvements, weddings, or emergencies, home equity loans typically offer better interest rates since they are secured by your home.

There are several reasons why you may want to consider a home equity loan for debt consolidation:

  • Rates might be better than unsecured loans like credit cards or personal loans.
  • If you have a lower credit score but still qualify, your APR with a home equity loan typically won’t go up as high as it would with an unsecured loan like a personal loan.
  • Fixed interest rate, terms, and monthly payment amounts. Discover Home Loans offers a second lien home equity loan with low, fixed rates.
  • Higher borrowing limits than other loan types (for example, with Discover Home Loans you may be able to borrow from $35,000-$300,000, depending on the amount of equity you have available).

If you have a large amount of debt on high interest rate cards or loans, a home equity loan might reduce monthly payment amounts and interest amounts. This may allow you to get back on your feet and pay just a single bill each month. Minimizing your bills may make it easier to control your finances and ensure you’re on the right path to financial stability.

Discover Home Loans offers low fixed rates on home equity loans and mortgage refinances with terms of 10, 15, 20, or 30 years and $0 application fees, $0 origination fees, $0 appraisal fees, and $0 costs due at closing.  

Cash out refinancing

Unlike a home equity loan, a cash out refinance is actually a restructured loan for an amount larger than the remaining balance of what you owe on your original mortgage and any other outstanding home loans. The difference between your refinanced loan and what you owe can be paid back to you in cash, which you can put towards debt consolidation.

Interest rates, maximum borrowing limits, and repayment terms work similarly to mortgage loans and home equity loans, where good credit may help drives interest rate offers down, your available home equity and a lender’s limits dictate your maximum borrowing, and you may have a choice of repayment terms to meet your monthly budget.

Whereas a home equity loan is a loan in addition to your mortgage loan that you will have to manage and repay separately, a cash out refinance loan allows you the simplicity of a single bill each month.

To see which debt consolidation option might be best for you and your finances, check out the debt consolidation calculator, where you can enter information for multiple bills to see if debt consolidation options with Discover can help you simplify your bills and reduce your debt.

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