Large debt consolidation loans: A guide to paying off big balances

Debt consolidation is a smart way to pay off high-interest debt, like credit card balances or payday loans. These loans offer fixed rates with a consistent monthly payment that helps you save money on interest. 

But what happens if you owe a large amount of money? While many lenders offer personal loans, their limits may not be high enough. When that happens, large debt consolidation loans are the answer. 

Large debt consolidation loans: A guide

Paying off debt can be difficult when a high interest rate causes most of your payment to go toward interest charges. Luckily, there are ways you can roll multiple debts into a single payment for easier payoff and saved interest.

Personal loans

A personal loan is an unsecured loan that you can use for any purpose. Approval for these loans is based on your credit score and income. As an unsecured loan, they don't require any collateral. However, these loans tend to have higher interest rates because the lender doesn't have an asset backing up the loan in case you stop making payments.

Loan amounts for personal loans vary by lender. Some banks offer loan amounts up to $100,000 or more, with repayment terms of up to seven years. Personal loans typically have fixed interest rates and consistent monthly payments that you can fit into your budget. Interest rates vary based on your credit history, loan amount, and repayment term. The average personal loan interest rate is 12.58% as of May 2025.

You can get a personal loan from a traditional bank, credit union, or online lender. A personal loan for debt consolidation is also available from peer-to-peer lending platforms. Some lenders charge an origination fee, which can increase your total borrowing costs. If your friends or family are willing, you can also borrow from them and set up your own repayment schedule.

Home equity loans

Homeowners can use a home equity loan to get cash out of their home without impacting their current mortgage. These loans act as a secured loan against the property with a second lien. This means you won't lose your current rate or change your existing mortgage payment.

With a home equity loan, you'll receive a fixed interest rate and fixed monthly payments. The loan term usually ranges from 5 to 30 years, depending on the lender and how long you want to spread out the payments. While a longer payment term can lower your monthly payment, you'll pay more interest over time.

Home equity loans are a popular choice for large debt consolidation loans because a home is often the largest asset a person has. The downside is that your home is at risk if you are unable to keep up with the monthly payments.

HELOCs

A home equity line of credit (HELOC) is similar to a home equity loan. It borrows against your home equity without impacting your existing mortgage. However, instead of receiving a lump sum of money, you have a maximum credit limit that you can borrow against. As you repay the balance, it frees up your available credit to borrow again in the future.

During the "draw period" (typically the first 10 years), you'll have a variable interest rate and monthly interest-only payments. The payment varies based on the current interest rate and your balance for that month. After the draw period expires, any existing balance converts into a term loan with a fixed interest that is typically repaid over a long term, such as 20 years.

Cash out refinance

A cash-out refinance replaces your existing mortgage with a new one. The balance increases based on how much cash you're pulling from your home's equity. Your monthly payment could increase, decrease, or stay about the same depending on how much cash you withdraw, current interest rates versus your existing rate, and your new loan term compared to your old one.

When people do a cash-out refinance, they often choose a shorter loan term than the traditional 30-year mortgage. This allows them to keep on track for paying off the mortgage on or about the original payoff date. However, this approach could increase your payment considerably if you use the refinance as a large debt consolidation loan.

Keep in mind that some lenders charge a higher interest rate when pulling cash out instead of doing a straight refinance.

Home equity investments

A home equity investment (HEI) is not a traditional loan, but an alternative method of accessing your home equity without signing on to another monthly payment. With an HEI, you'll receive a lump sum of cash upfront, but unlike other financing options, there are no monthly payments required.

HEIs are a good option for homeowners with less-than-perfect credit or difficulty proving income. You can get up to $500,000 from your home with no income checks and no monthly payments. Instead of monthly payments, you share a portion of your home's appreciation when you sell, refinance, or use another source of funds. 

401(k) loan

A 401(k) loan borrows money against your employer-sponsored retirement account. These loans do not hurt your credit, as there are no credit inquiries to get approved, and they do not report to the credit bureaus unless you do not make payments. These loans allow you to get up to $50,000 or 50% of your vested account balance, whichever is less. Borrowers must repay the balance within five years and must make payments at least once a quarter. Payments are typically made through payroll deductions in lieu of regular contributions to your retirement account.

However, because failing to make catch-up contributions can result in a serious retirement shortfall, it’s best to consult a financial advisor before pursuing this route.

Final thoughts

Large debt consolidation loans can be a powerful tool to take control of your financial situation and finally eliminate high-interest debt. Whether you choose a personal loan, tap into your home equity, or explore alternative options like a 401(k) loan or 0% APR credit card, the right strategy depends on your unique situation. Take time to compare your options, understand the risks, and create a solid repayment plan. With the right approach, consolidating your debt can simplify your finances, lower your stress, and put you on the path to long-term financial freedom.

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