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Can You Have More Than One Debt Consolidation Loan at One Time?

It's possible that you can have two debt consolidation loans at once, but it's important to consider the financial implications of doing so.

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Contributing Writer at Tally
July 15, 2021

We’ve recently spent time discussing debt consolidation loans and how they can be effective at reducing balances and providing debt relief. Because of the perks they provide borrowers, you may have asked yourself, “Can you have two debt consolidation loans at one time?” 

The answer, in summary, is that yes, you can have two debt consolidation loans. But, just because you can does not mean that it’s in the best interest of your personal finances to do so. Let’s take a closer look at what debt consolidation loans are and the implications that come with carrying more than one. 

What is a debt consolidation loan

A debt consolidation loan is a type of personal loan that allows you to pay down outstanding balances from other lenders, typically at a lower interest rate. The loan pays down your unsecured debt. These types of debt can include: 

  • Credit card balances. 
  • Medical bills. 
  • Other personal loans .
  • Student loans (possibly, so long as they are not secured).

A debt that is not secured means that it is not backed by collateral. For instance, if you have a mortgage or home equity loan (HEL), you are borrowing against the equity in your home. 

Should you default and fall behind on your loan payments, your lender can take possession of what you’ve put as collateral — in the cases of mortgages and HELs, the bank can repossess your home. Secured debt is not eligible for debt consolidation. You can only consolidate unsecured debt

A debt consolidation loan example

So, as an example, let’s say that you have credit card debt on three cards: 

  • Card one: $5,000 balance, 17% APR.
  • Card two: $10,000 balance, 16% APR.
  • Card three: $3,000 balance, 22% APR.

The total outstanding credit card debt is $18,000. Instead of trying to pay these down while battling compounding interest, you instead secure a debt consolidation loan amount of $18,000. The loan terms are for a 5% interest rate, and repayment is to occur over 36 months. 

You use the $18,000 you borrowed to pay down the credit card balances immediately. Then, you pay back the loan with a 5% interest rate. The choice you’ve made to refinance to a low interest rate saves you money in the long term.

The repayment period is 36 months. You have fixed payments due each month. These are the minimum payments required. You can pay more to help accelerate your timeline, but you can’t pay less without facing late fees

Can you have two debt consolidation loans at the same time? 

Can you have two debt consolidation loans: A mother works on a laptop while holding her baby

Let’s take our example above one step further. You and a spouse each have medical bills of $12,000. The bills have been sent to collections, and it’s urgent that you pay them. You have considered debt settlement but are worried about the long-term implications to your financial situation and the impact it will have on your credit score

Instead, you take out another personal consolidation loan for $24,000 to pay off the medical bills. Now, instead of having one single loan, you have two outstanding debt consolidation loans: one for $18,000 and the new loan for $24,000. 

Whether or not this is a wise decision depends on your personal financial situation. Debt consolidation options could offer lower monthly payments and make budgeting easier since you’ll have fixed-rate payments. You’ll know what the exact monthly bill will be for your debt payment, and there is no worrying about compounding interest. 

But, there are a few factors you need to consider before determining whether an additional consolidated loan is right for you. 

Monthly payments 

The most important thing to consider when asking, “Can you have two debt consolidation loans?” is whether you can afford to do so. 

For instance, in the example above, you are taking out two loans of $18,000 and $24,000. Though you are using this to pay outstanding debt, you are ultimately committing to $42,000 in new debt that has to be paid back within a certain time frame. 

You may receive a low interest rate that saves you money in the long term, but you should make sure you can afford the monthly payments on the loans in the short term.

Short-term hit to your credit score 

When you open the loan, your lender is going to have to look at your credit report. Doing so requires a hard inquiry into your credit history. This is the case for all borrowers

Whenever a lender looks at your credit report, the hard inquiry will lower your credit score temporarily. But if you make on-time payments, you should quickly begin to build good credit as you reduce the total amount of your outstanding debt. 

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Eligibility 

Another consideration when taking out two debt consolidation loans is that you may not be eligible for the second one. You often need to have at least average credit for a lender to approve you for a personal loan

Attempting to take out a second loan could raise red flags, especially if they see that you are behind on other payments. Lenders may not necessarily be willing to loan to you again — especially if you have fallen behind on your first consolidated loan

Fees associated with the loan 

There is a strong chance that you are going to have fees with your debt consolidation loan. You probably paid them once with the first loan. The fees depend on your lender but can include: 

  • Annual fees.
  • Closing costs.
  • Balance transfer fees. 
  • Loan origination fees. 

Additionally, there may be fees associated with paying off your loan early. Your repayment terms may stipulate that you can’t pay off the loan before a certain period of time without facing prepayment penalties. For example, if you have a 36-month loan, you may not be able to pay it off within the first 18 months without being charged a fee. 

Tax-deductible benefits 

The interest payments you make on some loans, such as student loans, may be tax-deductible. However, if you pay down the balance with a debt consolidation loan, you lose these benefits. The IRS says that the interest payments on a personal loan are not deductible in most cases. So, you may end up owing more at the end of the year as a result. 

What are some alternatives to debt consolidation loans

If you do not feel that taking on a second debt consolidation loan is in your best interest, there are a couple of alternatives that you can consider. These include: 

Another option you have is to utilize a credit card payoff app like Tally. Tally automatically pays down your credit card balances each month in the most strategic way possible. You will not miss monthly payments, which may keep you in good standing with your credit card company. Tally takes the guesswork out of paying off your credit card bills

​Should you secure two debt consolidation loans

Can you have two debt consolidation loans: A smiling family holds a credit card while using a laptop

If you’d like to secure two debt consolidation loans, it’s possible. There are no laws preventing you from opening a second. However, you will have to find a lender who is willing to offer you the second loan. 

Furthermore, there are financial implications that come with opening a second personal loan for debt consolidation. You are taking on a significant amount of debt, though it may come with a lower interest rate. Also, you may also lose tax benefits or owe more in fees. And your credit score will likely take a short-term hit. 

Should you choose not to open a second debt consolidation loan, look instead to Tally. Tally is a service that automatically pays down your credit card balances in the quickest and most efficient way possible, helping you to get out of debt.