Personal loan debt hits a 20-year high as more Americans borrow to pay bills

Oct 08, 2026 - 15:05

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David Merowitz said he racked up thousands of dollars in debt after losing his job during the pandemic. To dig himself out, he took out personal loans, including one to help cover credit card bills.

"At the time, I was struggling as a father and as a business owner and with the economy at the same time," he said.

Personal loan balances have reached a 20-year high, and while these loans can help cover major expenses or consolidate debt, experts warn they can also become part of a costly cycle.

Rising demand for personal loans

With inflation still running at 3.4%, more consumers are looking for ways to manage rising costs, and more are turning to personal loans.

According to a LendingTree survey, more than half of personal loan borrowers, 52.4%, report using the funds to pay down existing debt for debt consolidation or to refinance credit card balances.

How personal loans compare to other borrowing options

The math can make sense, according to Ted Rossman, principal consumer finance analyst with Money Management International. Credit card interest rates often top 20%, while the average personal loan rate is closer to 12%.

"Especially if you have good credit, you can get a rate in the high single digits," Rossman said. "The idea is you pay off the credit cards. Then you have four or five years in many cases to pay off the personal loan at a lower interest rate. It can be a real savings."

Rossman said personal loans can also help cover large expenses like weddings, medical bills, or business costs. But there is a catch. If you pay off your credit cards with a personal loan and then start using those cards again, you could end up with two layers of debt instead of one.

"Then you have the old credit card debt in the form of a personal loan -- and now you have new credit card debt on top of it," Rossman said.

Personal loan debt dropped to $145 billion in 2020. This year, it has climbed to $281 billion, up 9% from a year ago, making personal loans the fastest-growing form of consumer debt.

Rossman said personal loans are also much easier to get compared to other options like a home equity line of credit, which typically requires an appraisal and additional fees.

"A lot of times you can get the money in a day or two. The underwriting is not as strict," Rossman said.

"Don't wait" to ask for help

Merowitz eventually turned to nonprofit credit counseling with Money Management International. It offered a debt management plan without taking on a new loan.

"It seemed really like a great solution to roll everything into one payment, lower the interest and really tackle the principal in a quicker way," Merowitz said.

While personal loans can be a good borrowing tool for something like a home improvement project, Rossman urges consumers not to pay off debt with more debt.

"You actually have to close the credit cards in the plan, which some people view as a bit of tough love, but it's also to prevent this debt from re-accumulating," he said.

Merowitz is now in his final four payments of the program. His advice: Don't wait to get help.

"Every day that goes by -- the majority of these accounts are interest-bearing accounts, and there's no time like the present," he said.