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Personal Loans

Debt consolidation loans: compare top lenders

By
Sarah Maroney,
edited by
Maddie Lloyd
Updated Aug. 30, 2023, 9:43 a.m. ET
An older couple discusses a debt consolidation loan.
Shutterstock

If you have multiple sources of debt, your financial situation may feel a bit overwhelming — especially if you’re trying to pay off multiple loans with different balances, interest rates, and payment due dates. This is where debt consolidation can be handy.

You can use a debt consolidation loan to combine multiple sources of debt into one loan with a single monthly payment. Some debt consolidation lenders even offer to use your loan funds to pay your creditors directly.

If you can find a new loan with a lower APR and flexible terms than your current balances, then you stand to save money on interest and to make your life easier in one fell swoop. 

What is a debt consolidation loan?

Debt consolidation involves taking out a new loan that combines multiple sources of unsecured debts — like credit cards and medical bills — into a single loan with just one fixed payment. If you’re juggling multiple sources of debt, a debt consolidation loan could be a good idea to simplify the repayment process..

Debt consolidation loans are a type of personal loan you use specifically to pay off debts, and some lenders provide the option to pay your creditors directly. Your eligibility and the interest rate you’ll be offered largely depend on your credit score.

Having a higher credit score makes it easier to get a more favorable interest rate, but you can still qualify even if your credit score is less-than-stellar. Just keep in mind that you might have to settle for a higher interest rate.

These loans often come with lower APRs than other lines of credit like credit cards. With a lower APR, you’ll save money on interest charges over time and may be able to pay off your debt faster.

Compare debt consolidation loan lenders

If you’re thinking of applying for a debt consolidation loan, it’s important to compare multiple lenders so you can choose the best loan for your needs. Consider the following Credible partner lenders that offer personal loans for debt consolidation:

Achieve

Achieve offers interest rate discounts on debt consolidation loans when you opt to use your funds to pay creditors directly. Loan amounts range from $7,500 to $50,000 with repayment terms from two to five years.

Best Egg

Best Egg has a minimum credit score requirement of 600, making it a great option for borrowers with fair credit. You can borrow up to $50,000, with repayment terms from two to five years, and you may be able to secure a lower interest rate by enrolling in Direct Pay to pay your creditors directly.

Discover

Discover offers loan terms up to seven years, which can be attractive to borrowers who want to minimize their monthly payments. You can borrow $2,500 to $35,000, and Discover can release funds to you or your creditors as soon as one business day after approval. 

Happy Money

Happy Money specializes in personal loans for credit card debt consolidation. You can borrow between $5,000 and $40,000 and repay the loan over two to five years. Plus, you can opt to have Happy Money pay your credit card issuer directly. 

LightStream

LightStream offers loan limits as high as $100,000, but you’ll need at least a 660 credit score to qualify. You’ll have two to seven years to repay a debt consolidation loan from LightStream.

Reach Financial

Reach Financial is another lender that offers personal loans specifically for debt consolidation or credit card refinancing. You can borrow $3,500 to $40,000 and repay your loan over two to five years. Reach offers customizable monthly payments and hardship assistance, which lets you pause your payments for up to 90 days.

SoFi

SoFi provides zero-fee debt consolidation loans and discounts for enrolling in autopay. Loan amounts range from $5,000 to $100,000 with repayment terms from two to seven years. SoFi also offers a variety of unique borrower perks, like free credit monitoring and personalized financial advice.

Upgrade 

If you don’t need to borrow a lot of money, Upgrade debt consolidation loan amounts start at just $1,000 but range as high as $50,000. With a 560 minimum credit requirement, Upgrade is a great option for borrowers working toward building their credit.

Upstart

Upstart is another worthy option for borrowers who are building credit. In addition to your credit score, Upstart considers your education and job history when determining if you’re eligible for a loan. This means you might be able to qualify even if you have a thin credit profile. You can borrow $1,000 to $50,000 and repay your loan over three to five years.

How do you choose the best debt consolidation loan lender?

Debt consolidation only makes sense when it saves you money. As convenient as debt consolidation is, it’s not worthwhile if it makes your debt more expensive and hard to pay off. Here are some factors to keep in mind when shopping for a debt consolidation loan. 

  • APR: Your annual percentage rate (APR) represents the full cost of borrowing money, including the interest rate, fees, and other charges. The lower your APR, the less you’ll spend over the life of the loan. You can lock in a low APR by having good credit (a FICO score of 670 or higher) or by applying with a cosigner (or co-borrower) with good credit.
  • Origination fees: Some lenders charge origination fees to cover the cost of processing the loan. These fees are deducted from your loan funds and typically range from 0% to 10% of your borrowing amount.
  • Lender features: It’s a good idea to choose a lender that pays off your creditors directly. This simplifies the repayment process and ensures you aren’t tempted to spend the money and increase your debt load.

How do you qualify for a debt consolidation loan?

While all lenders have their own unique eligibility requirements, you’ll take the following steps to qualify for a debt consolidation loan:

  • Build your credit score. Try to improve your credit score before you apply for a debt consolidation loan to better your odds of being approved and to help you secure a lower interest rate. You can improve your credit score by consistently making on-time payments on all of your bills, paying off revolving credit, and getting current on any past-due accounts. 
    You can still qualify for a loan with a low credit score, as some lenders are willing to work with borrowers with poor or fair credit.
  • Shop around and compare lenders. It’s a good idea to shop around with several different lenders before submitting an application. Getting prequalified can give you an idea of what rates and terms you qualify for without affecting your credit.
  • Add a cosigner for lower rates. Adding a cosigner with good credit can make it easier to qualify for a debt consolidation loan and help you get a lower APR than you’d get on your own. Just make sure to keep up with your monthly payments to avoid dragging down your credit score — as well as your cosigner’s.

How to apply for a debt consolidation loan

If you’re ready to apply for a debt consolidation loan, follow these four steps:

  1. Check your credit score. Before you apply for a loan, it’s a good idea to know where your credit stands. You can check your credit report from each of the three major credit bureaus — Equifax, Experian, and TransUnion — at AnnualCreditReport.com. Make sure to check for any errors, like incorrect late payments or charge-offs, and dispute them with the appropriate bureau to potentially boost your score.
  2. Compare lenders. It’s important to shop around and compare as many different lenders as possible before submitting an application. Be sure to check not only APRs and repayment terms but also any discounts or fees the lender charges. Getting prequalified with multiple lenders will give you a more accurate picture of what rates and terms you’re eligible for.
  3. Submit your application. Once you choose the best loan for your unique financial situation, you’ll submit a formal application. You’ll likely need to provide personal information, such as your name and Social Security number, and financial documents, like recent pay stubs and tax returns.
  4. Get your funds. If you’re approved and want to accept the loan, you’ll sign and return a loan agreement so the lender can release your funds. The time to fund for personal loans can range from as soon as the same or next business day of approval to up to a week.

You can estimate how much your payments will cost each month by using a personal loan calculator.

How will debt consolidation affect your credit score?

When you apply for a debt consolidation loan, the lender will perform a hard credit inquiry to determine your eligibility. The hard credit check will temporarily reduce your credit score by a few points, but your credit will recover in just a few months.

On the other hand, a debt consolidation loan can be a useful tool for improving your credit. By taking multiple debts with varying due dates and rolling them into one loan with one payment to manage, you might find it’s easier to make your payments on time each month. Payment history accounts for 35% of your credit score, so making consistent on-time payments is a quick and easy way to boost your credit score.

Additionally, a debt consolidation loan can reduce your credit utilization by paying off your existing credit card balances. Your credit utilization ratio is the amount of credit you owe divided by your credit limit. For example, if your credit limit is $10,000 and your current balance is $3,000, your credit utilization rate is 30%. Because your credit utilization ratio makes up 30% of your credit, paying off your balances with a debt consolidation loan can bring up your score.

What are the advantages of debt consolidation loans?

Taking out a debt consolidation loan may help put you on a faster track to total payoff, especially if you have significant credit card debt. You can also potentially save money from interest and fees from credit cards or other loans.

The key is to find a debt consolidation loan with a lower interest rate and fewer fees than you’re currently paying. Lower interest charges and fewer fees may make it easier to pay off your debt faster.

Alternatives to debt consolidation loans

If a debt consolidation loan isn’t right for you, here are other options to help pay off your debt:

  • 0% balance transfer credit card: These cards allow you to transfer the balance from one or multiple credit cards to a new card. The goal is to transfer your total balance to a card with a lower APR than you’re currently paying. Many credit card companies offer 0% APR for an introductory period, which means you can pay down your balance without incurring any interest. Once the introductory period ends, the card’s regular APR kicks in and applies to any remaining balance. 
  • HELOC: A home equity line of credit (HELOC) is a type of revolving credit that’s secured with your home as collateral. You can borrow against the equity in your home as often as needed for a certain amount of time, also known as a “draw period.” Once the draw period ends, you’ll repay what you borrowed.  
    Just keep in mind that because your house secures the loan, your home can be seized if you can’t make payments.
  • Debt snowball method: With this repayment method, you pay off the debt with the smallest balance first. Once that debt is paid off, you move on to the next-smallest balance and so on until all of your balances are paid off.  While this method builds motivation as you see progress quickly, you may pay more in interest charges over time.
  • Debt avalanche method: With this strategy, you’ll make minimum payments on all of your balances and put any additional funds toward your debt with the highest interest rate. Once that balance is paid off, you’ll focus on the debt with the next-highest interest rate until all of your debts are paid off. While it may take longer to see progress with this method, it may save you in interest costs over time.
  • Credit counseling: Not-for-profit credit counseling organizations can help you build a debt management plan. A counselor will negotiate with your creditors to lower your interest rate or monthly payments. You’ll then continue to make payments to your creditors with your new rates and terms. 
    Credit counseling can also help you better understand your spending habits so you can avoid falling back into a cycle of debt in the future.

Before you apply for a debt consolidation loan, it’s a good idea to consider all of your options and find a loan that will best suit your unique financial needs.