As household budgets face pressure from persistent inflation and high prices, a growing number of Americans are turning to financial tools like balance transfer credit cards and personal loans to tackle overwhelming debt. While these strategies can offer temporary relief and lower interest costs, consumer advocates and financial counselors warn they often fail without a fundamental shift in financial behavior.
“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,” explained Jim Triggs, a certified financial counselor and CEO of Money Management International, a nonprofit credit counseling agency. “You can never borrow your way out of debt. Eventually, you’re gonna have to pay it and pay it off.”
The scale of the challenge is significant. According to the Federal Reserve Bank of New York, total U.S. credit card balances reached a record $1.28 trillion in the final quarter of 2025. For many, especially middle-income households with stable jobs, everyday expenses have outpaced wage growth, leading to increased reliance on credit.
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Personal loans, which provide a fixed lump sum repaid in installments typically over two to five years, are a popular consolidation tool. They often carry lower average interest rates than credit cards. Data from Bankrate shows the average personal loan rate stood at 12.26% in early 2026, compared to an average of 19.58% for credit cards. This differential can mean substantial savings on interest charges for qualified borrowers.
The trend is clear at counseling agencies. Money Management International reported that 40% of its new credit counseling clients in the past year had an existing personal loan on their credit report, a notable increase from 27% in 2020. “Most of the consumers that we see, we would consider middle class,” Triggs noted. “They have jobs, they have debt, they have owned houses, and they’re just struggling with debt.”
This shift is reflected in broader industry forecasts. A February 2026 report from TransUnion, one of the nation’s three major credit bureaus, projected that unsecured personal loans would be the primary engine of new consumer borrowing throughout the year.
‘It’s a never-ending cycle’
However, Triggs and other experts stress that consolidation is a financial tactic, not a cure for underlying spending problems. A 2023 TransUnion study tracked borrowers who consolidated credit card debt and found they reduced their card balances by an average of 57%. Yet, just 18 months later, many had accumulated new debt, climbing back toward their previous balances.
Historically, data shared with CNBC by TransUnion indicates that 14% to 17% of new personal loans are used to refinance outstanding personal loans, signaling a potential cycle of borrowing for some.
Navy veteran Demetrius Thrasher, 38, knows this cycle all too well. He first took out a personal loan in 2022 to cover living expenses and consolidate car and credit card debt. After a car accident derailed his repayment plan, he refinanced the loan multiple times, most recently in January 2026. His current personal loan carries a steep 19% interest rate. “It’s to the point now where I’m just overextended,” said Thrasher, a restaurant worker and college student in Atlanta. “It’s a never-ending cycle, and I’m ready for this cycle to be over.”
Removing the shame of debt
Breaking the cycle requires addressing the psychological and behavioral roots of debt, according to Rahkim Sabree, an accredited financial counselor and financial therapist. “Debt elimination is not just about the math,” he said.
Sabree works with clients to understand their emotional triggers for spending and to recognize the sophisticated marketing systems designed to encourage consumption. By unpacking the feelings—whether stress, boredom, or social pressure—that drive unnecessary purchases, individuals can set more realistic and sustainable repayment goals. “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 explained.
The key, he emphasizes, is committing to a single, manageable strategy and persisting with it. “That change of behavior is not something that’s going to happen overnight,” Sabree said.
For those feeling overwhelmed, nonprofit credit counseling agencies like Money Management International can help. They may negotiate a debt management plan (DMP) with creditors, which can lower interest rates and extend repayment terms. Such plans provide
