An increasing number of Americans are turning to balance transfers and personal loans to consolidate and manage debt. It can save them money in the short term, but without a change in spending habits, that strategy is likely to fail, experts say.
“If they didn’t fix whatever issues were causing them to overspend and charge on the credit cards in the first place, then they’re just going to start charging again,” said Jim Triggs, CEO of Money Management International, a nonprofit credit counseling firm. “You can never borrow your way out of debt. Eventually, you’re gonna have to pay it and pay it off.”
Credit card balances reached a record $1.28 trillion at the end of 2025, according to the New York Fed. And many consumers are struggling with higher everyday expenses.
Personal loans, which provide a lump sum of money and are typically repaid over two to five years, can be a smart way to consolidate high-interest debt. Rates depend on the borrower’s creditworthiness; the average is 12.26%, versus 19.58% for credit cards, according to Bankrate.
Last year, 40% of new credit counseling clients at Money Management International had an existing personal loan on their credit report, up from 27% in 2020.
“Most of the consumers that we see, we would consider middle class. They have jobs, they have debt, they have owned houses, and they’re just struggling with debt.” Triggs said.
A February forecast from TransUnion, one of the three major credit reporting agencies, anticipates that unsecured personal loans will be the primary driver of new borrowing this year.
‘It’s a never-ending cycle’
But, as Triggs said, consolidating debt isn’t a cure-all.
A 2023 TransUnion study found that people who consolidated debt reduced their credit card balances by 57%, on average — but 18 months later, many borrowers had climbed back up to their previous level of debt.
Historically, 14% to 17% of new personal loans have been used to refinance prior personal loans, according to TransUnion data provided to CNBC.
That’s been the case for Navy veteran Demetrius Thrasher, 38. He said he first took out a personal loan in 2022 to make ends meet and to consolidate car loan and credit card debt. He’s refinanced multiple times, most recently in January, after a car accident upended his plans to pay off the debt. His latest personal loan carries a 19% interest rate.
“It’s to the point now where I’m just overextended,” said Thrasher, a restaurant worker who recently returned to college in Atlanta in the hopes of landing a better job. “It’s a never-ending cycle, and I’m ready for this cycle to be over.”
Removing the shame of debt
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Financial therapy can help some borrowers fix underlying issues that contribute to debt. “Debt elimination is not just about the math,” said Rakim Sabree, an accredited financial counselor.
How people respond to stress can help them break the cycle of debt, he said, and so can understanding the marketing and advertising systems designed to encourage spending. Once people have an understanding of the emotions around their spending, they can set realistic expectations for paying down debt.
“It is helping people to remove the shame and the guilt of their situation so that they can now view the debt that they carry through maybe a more clear lens,” Sabree said.
The key to paying down debt is for the borrower to pick a strategy they can stick with — and then keep chipping away. “That change of behavior is not something that’s going to happen overnight,” Sabree said.
Non-profit debt counselors can help negotiate a debt management plan with creditors, which may reduce interest rates and extend the repayment term. A personal loan, balance transfer or other tools may or may not be the right options as part of that bigger plan.
“Consumers should take a moment, look at the full picture and choose a solution that builds long-term stability, not just short-term relief,” Triggs said.
