Intention Versus Action: Why Debt Consolidation Needs Better Data and Better Execution

Personal loan balances in the United States have reached an all-time high — $281 billion in the second quarter of 2026, according to TransUnion. This makes unsecured personal loans the fastest-growing consumer lending category in the country. 

For most consumers, these new funds aren’t going to a big purchase or project. LendingTree’s data shows more than half of borrowers (53.1%) are using personal loans to consolidate debt or refinance credit cards. 

But, here’s the challenge: most personal loans for debt consolidation or refinancing never make it to that end goal. 

A 2023 TransUnion study found people who consolidated debt reduced their credit card balances by 57%, on average. And, many borrowers are now back up to their previous debt levels since this study. 

Why Debt Consolidation Loans Don’t Survive Contact with Reality

A recent deep dive article by Fintech Takes (and sponsored by our counterparts at Method Financial) points to the last mile as the problem. Consumers receive the loan proceeds, then have to manually move money across multiple creditors and servicers. Some balances may be outdated. Payoff amounts can change. Some creditors still don't support electronic payments. 

Plus, borrowers are human. Once the money lands in a checking account, it is remarkably easy for good intentions to get derailed. And, as we mentioned earlier, many consumers only reduce their debt balances partially and temporarily from a debt consolidation loan. 

I love what Alex Johnson has to say about this dynamic: 

“... There’s no partial credit for almost escaping. The borrower either gets out from under the revolving debt or they don’t, and the difference between 100% and 90% is not a difference of degree. It’s a difference of outcome.”

Why Partial Payoff Is an Issue

A debt consolidation loan is supposed to change a consumer’s financial position. If a borrower takes out a $20,000 loan to pay off $20,000 in revolving debt, the desired outcome isn’t to reduce that debt by some amount. It’s to replace it.

When only part of the debt gets paid off, the consumer ends up with both the new installment loan and the remaining revolving balances. They’ve added another monthly payment without fully eliminating the debt they intended to consolidate.

That creates problems for lenders too. When lenders can’t verify which debts will actually be paid off, they have to make underwriting decisions based on assumptions. They may not know the consumer’s true post-consolidation debt-to-income (DTI) ratio or whether the loan proceeds will achieve the intended debt reduction.

The result is a frustrating dynamic: Consumers may not get the amount they need to fully consolidate their debt, while lenders have limited visibility into whether their loan accomplished its intended purpose.

Eliminating the Challenges of Debt Consolidation

The mechanics of successful debt consolidation start with knowing exactly what the consumer owes. But that's only the beginning. Once a lender knows which debts a consumer has today and what they want to consolidate, it needs to determine exactly what it will take to pay each one off.

That means moving from identifying liabilities to verifying payoff amounts to actually settling those debts.

A successful consolidation process needs to solve all three parts of that equation:

Complete Debt Profile = Clearer View of What Needs to be Paid Off

Credit bureau data provides an important foundation to understanding a consumer’s current financial liabilities. But it doesn't always provide the level of detail or freshness needed to execute a payoff. Balances can be stale and the bureau data doesn’t include critical details like current APRs.

A complete consumer debt profile gives lenders a clearer picture of the consumer’s financial obligations and helps borrowers identify which debts they want to consolidate. It can also give lenders greater confidence when evaluating the loan against the consumer’s overall financial position.

Most importantly, it replaces assumptions with information.

Instead of asking a consumer what they owe and relying on manual or potentially outdated information, lenders can use consumer-permissioned liability data to understand the debts that are actually present.

Real-Time Balances = More Accurate Payoff Amounts 

Knowing that a consumer has a credit card with a $10,000 balance is useful. Knowing exactly how much it will take to pay that account off today is much more useful.

Payoff amounts can change as interest accrues and payments are made. A balance reported by a credit bureau may not reflect what a creditor will accept as payment in full at the moment the lender is ready to fund the loan.

That creates an unnecessary gap between underwriting and execution.

Real-time liability data can help lenders retrieve more current balance and account information, giving them a more accurate view of what needs to be paid and how much it will cost to close those accounts. In addition, real-time APRs can add another layer of intelligence for an even more complete view of a consumer's financial obligations.

For consumers, that means a clearer understanding of what their new loan will accomplish. For lenders, it means greater confidence that the loan is sized appropriately to achieve the intended outcome.

Direct Pay = More Payments Reach Existing Creditors 

Even with an accurate picture of the consumer’s debt and current payoff amounts, there’s still one critical step: getting the money where it needs to go.

Rather than depositing the loan proceeds into a consumer’s checking account and asking them to manually pay multiple creditors, lenders can use solutions like Spinwheel Pay to route funds directly to the right creditors as part of the funding process. 

At the same time, Spinwheel doesn’t require lenders to replace existing payment rails to make direct pay possible. Spinwheel also supports bring-your-own-rails workflows with its Disbursement Data solution — allowing lenders to use the payment infrastructure they’ve already built while focusing on what actually matters: accurately mapping each payment to the right destination. 

Either way, direct pay reduces the number of steps a borrower has to complete, minimizes opportunities for funds to be diverted to other expenses, and gives the lender greater visibility into whether the intended debts were actually paid.

Better Debt Consolidation Starts with Better Data. It Succeeds with Better Execution.

When lenders can see a consumer’s complete liability picture, access current payoff information and direct funds to the creditors that need to be paid, they can turn a consumer’s intention into a much more certain outcome.

Want to learn more about how Spinwheel can drive better outcomes for debt consolidation? Request a demo today.