When facing high-interest credit card debt, many consumers turn to personal loans to consolidate their balances, attracted by lower interest rates and fixed monthly payments. While a personal loan with a good credit history can offer rates around 7 percent—significantly less than credit card rates that often range between 20 and 30 percent—experts caution that this approach may not resolve underlying financial issues.

A recent report from Money Management International (MMI), a nonprofit credit counseling agency, reveals that 45 percent of new clients seeking debt assistance carry personal loans, with an average balance nearing $19,000—an 11 percent increase from 2025. Ted Rossman, MMI’s principal consumer finance analyst, described consolidation loans as “a bit of a shell game,” warning that paying off debt with new debt without addressing spending or cash-flow problems can lead to deeper financial distress.

The demographic data from MMI shows millennials (ages 30 to 45) comprise over half of the agency’s clientele, carrying an average debt of $43,533. Generation X (ages 46 to 61) hold the highest average of $53,350, while Gen Z adults (ages 18 to 29), though representing only 16 percent of clients, are the fastest-growing group with a 35 percent increase in clients and a 12 percent rise in average debt over the past year. Rossman noted that younger adults often lack savings and face early-career income challenges coupled with expenses such as student loans, housing, and child care.

Financial experts advise potential borrowers to critically assess whether they have resolved the cash-flow gap that led to accumulating debt before applying for consolidation loans. Rising costs of living—including food, housing, and utilities—continue to outpace wage growth for many households, resulting in ongoing reliance on credit, even after consolidations.

Instead of swapping debts, experts recommend considering non-profit credit counseling services and debt management plans (DMPs). Unlike standard consolidation loans, DMPs offer benefits such as negotiated lower interest rates—MMI clients have seen rates reduced on average from 27.91 percent to 7.66 percent—as well as creditor-mandated closure of enrolled credit card accounts to prevent new charges. Though this may initially impact credit scores, successful completion of a DMP often leads to credit score improvements over time. Research from Ohio State University on behalf of the National Foundation for Credit Counseling found an average 50-point credit score increase after about 18 months of counseling.

Unlike for-profit debt settlement companies, which often charge high fees and recommend strategies counterproductive to credit health, non-profit counseling services offer affordable options. Typical fees for DMPs include a $35 to $55 setup charge and $25 to $40 monthly maintenance fees, with waivers available in cases of financial hardship.

Counselors working with clients provide ongoing financial coaching and accountability, helping to address behavioral issues such as overspending and inadequate budgeting—services not available through consolidation loans. This comprehensive support aims to break the cycle of accumulating debt and reliance on new credit.

For individuals struggling with debt, experts emphasize the importance of addressing the root causes of financial challenges and seeking structured, professional assistance rather than relying solely on debt consolidation loans. Non-profit credit counseling agencies can be accessed through the National Foundation for Credit Counseling at nfcc.org or via the hotline 844-865-2828.