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Can you Refinance a Debt Consolidation Loan?
by
JG Wentworth
•
May 14, 2025
•
6 min
Debt consolidation loans can be an effective strategy for managing multiple debts, but circumstances change. Whether you’re seeking better terms or your financial situation has improved, you might wonder if refinancing your debt consolidation loan is possible. The simple answer is yes—you can refinance a debt consolidation loan, and in many cases, it might be advantageous to do so.
What is a debt consolidation loan?
Before diving into refinancing, let’s clarify what a debt consolidation loan is. These loans allow you to combine multiple debts (like credit cards, medical bills, and personal loans) into a single loan with one monthly payment. Ideally, this consolidation comes with a lower interest rate than your original debts and simplifies your financial management.
Can you refinance this type of loan?
Yes, you can refinance a debt consolidation loan. Refinancing involves replacing your existing loan with a new one that hopefully offers better terms. This process is similar to your initial consolidation but focuses on improving the terms of your consolidated loan rather than combining multiple debts
When should you consider refinancing your loan?
A few common reasons why refinancing your debt consolidation loan might make sense:
- Your credit score has improved: If your credit score has significantly improved since taking out your original consolidation loan, you might qualify for better interest rates. Even a reduction of 1-2 percentage points can translate to substantial savings over the life of your loan.
- Interest rates have decreased: Financial markets fluctuate, and if overall interest rates have dropped since your original loan, refinancing could secure you a lower rate regardless of changes to your personal financial situation.
- You need lower monthly payments: If you’re struggling with your current payment amount, refinancing to a loan with a longer term can reduce your monthly payments, though you’ll likely pay more interest over time.
- You want to pay off debt faster: Conversely, if your financial situation has improved and you can handle higher monthly payments, refinancing to a shorter-term loan could help you become debt-free sooner and save on interest.
- You want to switch loan types: Perhaps you originally chose a variable-rate loan and now want the security of a fixed rate, or you want to move from a secured to an unsecured loan (or vice versa).
- Your current loan has unfavorable terms: If your existing loan has prepayment penalties, high fees, or other unfavorable terms, refinancing might help you escape these constraints.
Potential benefits of refinancing
Some of the main perks include:
- Financial savings: The most obvious benefit is saving money through lower interest rates. For example, refinancing a $20,000 loan from 10% to 7% interest could save you thousands over the life of the loan.
- Improved cash flow: Extending your loan term can reduce monthly payments, freeing up cash for other financial needs or emergencies.
- Debt-free sooner: Conversely, shortening your loan term can help you eliminate debt faster, potentially saving on interest and improving your financial freedom sooner.
- More favorable loan terms: Beyond interest rates, you might secure better loan features like no prepayment penalties or more flexible payment options.
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Potential drawbacks to consider
If you decide to go through with refinancing, you should be aware of the following:
- Additional fees: Refinancing often comes with origination fees, application fees, or other costs that could offset your savings, especially if you’re not planning to keep the new loan long-term.
- Extended debt timeline: If you extend your repayment period to lower monthly payments, you’ll likely pay more in interest over time and remain in debt longer.
- Impact on credit score: Each loan application generates a hard inquiry on your credit report, which temporarily lowers your score. Additionally, closing old accounts and opening new ones can affect your credit age and mix.
- Risk of debt accumulation: Refinancing a consolidation loan can present the same risk as the original consolidation: the temptation to accumulate new debt on freshly paid-off accounts.
The refinancing process: Step by step
If you decide that refinancing your debt consolidation loan is in your best interest, here are the basic steps involved:
- Check your credit score: Before applying for refinancing, check your current credit score to understand your position and if you’ve improved since your original loan.
- Calculate your current debt: Know exactly how much you still owe on your consolidation loan.
- Research lenders and compare rates: Look at banks, credit unions, online lenders, and peer-to-peer lending platforms. Pre-qualification can help you compare potential offers without affecting your credit score.
- Evaluate loan terms: Look beyond interest rates to examine:
- Loan duration
- Fixed vs. variable rates
- Origination fees
- Prepayment penalties
- Monthly payment amounts
- Apply for the new loan: Once you’ve selected a lender, complete their application process, which typically requires documentation of your income, employment, and existing debts.
- Pay off the original loan: If approved, the new loan proceeds are often used to directly pay off your existing debt consolidation loan.
- Begin payment on your new loan: Start making payments according to your new loan agreement.
Tips for successful refinancing
- Improve your credit before applying: If possible, take a few months to improve your credit score through timely payments, reducing other debts, and correcting any errors on your credit report.
- Don’t close old credit accounts: After consolidating or refinancing, keep old accounts open (but unused) to maintain your credit utilization ratio and credit history length.
- Read the fine print: Understand all terms, conditions, and fees associated with your new loan.
- Consider secured loan options: If you have assets to offer as collateral, secured loans typically offer lower interest rates than unsecured options.
- Maintain financial discipline: Create a budget that accommodates your new loan payments and prevents accumulating new debt.
The bottom line
Refinancing a debt consolidation loan can be a strategic financial move that saves money and improves your financial flexibility. However, it’s not automatically beneficial for everyone. By carefully analyzing your specific situation, comparing loan options, and considering both short and long-term implications, you can determine whether refinancing your debt consolidation loan aligns with your financial goals.
Remember that successful debt management extends beyond clever refinancing—it requires consistent financial discipline and planning. Whether you choose to refinance or stick with your current loan, continue building positive financial habits that will serve you well beyond your debt repayment journey.
There’s always JG Wentworth…
If you have $10,000 or more in unsecured debt there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
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* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.