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5.99 - 35.99 %
APR
0.25 - 6 years
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Best Debt Consolidation Loans of September 2021: Compare & Apply

Managing several high-interest debts is never easy. Not only does a lot of money go towards interest, but you also have to make a number of payments each month. Even if you can afford the monthly due amounts, it can still be stressful. In this article, we’re going to talk about debt consolidation loans. These loans enable you to combine all outstanding debts and pay them off with one single monthly payment, ideally with a lower overall interest rate. The market offers many alternatives, and this article will help you choose one of them. So keep reading to find out all about debt consolidation loans and which are the best (we’ve also included options for those with bad or little credit history!).

By Hanna Volkava
Updated September 20, 2021
Showing 19 personal loans for best debt consolidation loans
APR
5.99 - 35.89 %
Term
0.25 - 8years
Loan amount
$1,000 - $35,000
  • Minimum credit:
    scorer
    Poor (300-579)
  • Origination fee:
    No origination fee.
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Personal Loan, Home Improvement Loan, Medical (Dental) Loan, Debt Consolidation Loan, Major Purchase, Moving Expenses (Relocation), Travel
  • Pros:
    • No prepayment penalty
    • No fees
    • Fast approval and funding
  • Cons:
    • High APR

Personal Loans® offers loans up to $35,000 without fees.

The APR range from 5.99% to 35.89%, with loan terms from 3 to 96 months.

Apply now
APR
5.99 - 35.99 %
Term
0.25 - 6years
Loan amount
$500 - $10,000
  • Minimum credit:
    scorer
    Poor (300-579)
  • Origination fee:
    None
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Personal Loan, Home Improvement Loan, Medical (Dental) Loan, Debt Consolidation Loan, Major Purchase, Moving Expenses (Relocation), Travel
  • Pros:
    • Fast and convenient service
    • Works in all 50 states
    • Personal loans for any purpose
  • Cons:
    • No direct loans

CashUSA offers quick personal loans. If a lender makes you a loan offer, you will have an opportunity to review the offer before deciding to accept it. In most cases, your funds can be deposited directly into your bank account via electronic fund transfer in as little as 1 business day.

CashUSA personal loans range between $500 to $10,000. The APR range is from 5.99% to 35.99%.

Whether you need to consolidate debt, remodel your home, or take a vacation, a personal loan may be a viable option.

Apply now
APR
On request
Term
On request
Loan amount
$100 - $50,000
  • Minimum credit:
    scorer
    Poor (300-579)
  • Origination fee:
    None
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Personal Loan, Home Improvement Loan, Medical (Dental) Loan, Debt Consolidation Loan, Moving Expenses (Relocation), Travel
  • Pros:
    • Simple application process
    • Fast service
  • Cons:
    • Not a direct lender

InstallmentLoanSOS is not a lender and does not provide loans but aims to connect consumers with lenders who may provide such loans.

InstallmentLoanSOS offers quick personal loans from $100 to $50000.

Apply now
APR
On request
Term
On request
Loan amount
$100 - $5,000
  • Minimum credit:
    scorer
    Poor (300-579)
  • Origination fee:
    None
  • Funds available in:
    1 - 2 business days.
  • Loan Purpose:
    Personal Loan, Home Improvement Loan, Medical (Dental) Loan, Debt Consolidation Loan, Moving Expenses (Relocation), Travel
  • Pros:
    • Simple application process
    • Fast service
  • Cons:
    • Not a direct lender

RubikLoan® offers quick personal loans from $100 to $5000. Final approval and funding is often done in as little as 24 to 48 hours.

Apply now
APR
5.99 - 24.99 %
Term
2 - 5years
Loan amount
$5,000 - $40,000
  • Minimum credit:
    scorer
    Good (670-739)
  • Origination fee:
    5%
  • Funds available in:
    3-6 business days.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • No prepayment or late fees
    • Free monthly FICO score updates
  • Cons:
    • Co-signers are not accepted
    • Origination Fee
    • Slow funding
    • Not available in all states

The Payoff Loan™ is an unsecured personal loan designed to consolidate your credit cards into one monthly payment. Payoff requires a minimum FICO credit score of 640 or higher. It provides loans of up to $40,000.

The Payoff platform provides loans with rates between 5.99% and 24.99% APR. Minimum loan amount and APR may vary in certain states.

Apply now
APR
6.74 - 19.74 %
with Autopay
Term
3 - 6years
Loan amount
$3,500 - $40,000
  • Minimum credit:
    scorer
    Fair (580-669)
  • Autopay discount:
    0.25%
  • Origination fee:
    No origination fee.
  • Funds available in:
    5 business days.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • No fees
    • Autopay discount
  • Cons:
    • Long time to receive funds
    • No Cosigner Option

Marcus offers unsecured personal loans up to $40,000 with rates from 6.99% to 19.99%.

Marcus does not charge origination, late payment and check processing fees.

A debt consolidation loan from Marcus allows you to take debt from multiple creditors and combine it into a single, fixed-rate, no-fee personal loan.

Apply now
APR
5.95 - 19.99 %
with Autopay
Term
2 - 7years
Loan amount
$5,000 - $100,000
  • Minimum credit:
    scorer
    Good (670-739)
  • Autopay discount:
    0.5%
  • Origination fee:
    No origination fee.
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • Low rates
    • No fees
    • Fast approval and funding
    • Rate discount for autopay
    • Digital experience
  • Cons:
    • Minimum loan amount is a bit high
    • Requires a long credit history

LightStream is the online lending division of Truist (formerly SunTrust Bank).

The key feature of LightStream's online personal loans is that they can be up to $100,000 and used for nearly any reason.

LightStream charges no fees on its personal loans. Plus, it offers to send you $100 if you’re unsatisfied with the loan process.

The loan gives you the choice of your funding date and repayment terms. You can save money each month, if you have good credit, by consolidating multiple debt payments into a single payment at a lower interest rate.

Apply now
APR
6.95 - 35.99 %
Term
3 - 5years
Loan amount
$1,000 - $50,000
  • Minimum credit:
    scorer
    Fair (580-669)
  • Origination fee:
    8%
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • No prepayment penalty
    • Next day funding
  • Cons:
    • Origination Fee
    • Extra Fees

Upstart loans range from $1,000 to $50,000. Not all applicants will qualify for the full amount. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5,100. The minimum loan amount in GA is $3,100.

Borrowers need credit scores of 580 or higher.

Upstart offers fixed-rate APRs that vary from 6.95% to 35.99%. Loan terms are available for 3 or 5 years.

The origination fee ranges from 0% to 8%.

Apply now
APR
5.44 - 35.47 %
with Autopay
Term
3 - 5years
Loan amount
$1,000 - $50,000
  • Minimum credit:
    scorer
    Fair (580-669)
  • Autopay discount:
    0.5%
  • Origination fee:
    2.9 - 8%
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • Fast funding
    • Wide range of loan amounts
    • Accessible to most borrowers
  • Cons:
    • Origination fee

Upgrade personal loans are designed for mainstream appeal, supporting a wide range of credit scores and incomes.

Upgrade offers 36-month or 60-month fixed-rate personal loans, which generally range from $1,000 to $50,000, in 44 states. Upgrade loans are not available in Colorado, Connecticut, Iowa, Maryland, Vermont and West Virginia.

Eliminate high-interest debt and credit card payments with a lower rate.

You can repay your Upgrade personal loan over three or five years.

To apply for an Upgrade personal loan, you’ll start by filling out a one-page application to see which terms you qualify for based on a soft credit check (or credit inquiry that doesn’t impact your credit score).

Apply now
APR
5.99 - 29.99 %
Term
3 - 5years
Loan amount
$2,000 - $35,000
  • Minimum credit:
    scorer
    Good (670-739)
  • Origination fee:
    0.99 - 5.99%
  • Funds available in:
    1-3 business days.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • Fast approval
    • Low fixed rates
    • Fast funding
  • Cons:
    • Fee charged

Best Egg is a national online lender offering personal loans starting at $2,000 for a variety of purposes.

A debt consolidation loan is an unsecured personal loan that can help you consolidate different types of debt.

There are no prepayment penalties, so you can pay off the loan ahead of schedule without extra fees.

Best Egg origination fees vary from 0.99% to 5.99%. Origination fees on a loan term four years or longer will be a minimum of 4.99%.

The quote you receive is based on multiple factors, including: Credit score and history, Income, Debt obligations, Loan amount, Repayment term (36 vs. 60 months).

Apply now
APR
6.99 - 24.99 %
Term
3 - 7years
Loan amount
$2,500 - $35,000
  • Minimum credit:
    scorer
    Fair (580-669)
  • Origination fee:
    No origination fee.
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • No Origination Fee
    • Fast payment
    • Flexible repayment terms
  • Cons:
    • Late Payment Fee
    • No secured loan options
    • No cosigners allowed

Discover Bank offers interest rates from 6.99% to 24.99%. Discover offers personal loans of up to $35,000 in 50 states.

The bank doesn't offer bad credit loans.

Discover offers a 30-day money-back guarantee on its loans. You can return the loan funds within 30 days without paying any interest.

Discover charges a $39 late fee.

Apply now
APR
9.95 - 35.99 %
Term
2 - 5years
Loan amount
$2,000 - $35,000
  • Minimum credit:
    scorer
    Poor (300-579)
  • Origination fee:
    4.75%
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • Fast approval and funding
    • Low minimum credit score requirements
    • No prepayment fees
  • Cons:
    • Fees
    • No Autopay discount
    • No Cosigner Option

Avant offers unsecured loans of $2,000 to $35,000. Rates range from 9.95% to 35.99%.

Avant charges an origination fee up to 4.75%.

Avant personal loans are not available in Colorado, Iowa, West Virginia, New York, Vermont, Hawaii, and Nevada.

Apply now
APR
5.74 - 19.38 %
with Autopay
Term
3 - 7years
Loan amount
$5,000 - $100,000
  • Minimum credit:
    scorer
    Good (670-739)
  • Autopay discount:
    0.25%
  • Origination fee:
    No origination fee.
  • Funds available in:
    1 business day.
  • Loan Purpose:
    Debt Consolidation Loan
  • Pros:
    • Fast approval and funding
    • Rate discount for autopay
    • No Fees
  • Cons:
    • Not available to residents of Mississippi
    • No secured loan option

SoFi loans range between $5,000 to $100,000.

The APR range is from 5.99% to 19.63%. Loan terms are available for 3 or 7 years.

The loan is not available in Mississippi.

SoFi personal loans have no fees: no origination fees, no late fees, no prepayment penalties.

Apply now
Search for best loan
Showing 19 personal loans
Amount
$
Credit Score
City, state or Zip
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  • District of Columbia
  • Florida
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  • Vermont
  • Virginia
  • Washington
  • Wisconsin
  • West Virginia
  • Wyoming
Loan Purpose
  • Personal Loan
  • Home Improvement Loan
  • Medical (Dental) Loan
  • Debt Consolidation Loan
  • Major Purchase
  • Refinance Credit Card
  • Moving Expenses (Relocation)
  • Travel
  • Other

Best personal loans for debt consolidation

LenderAPRLoan AmountLoan termOrigination FeeApply
Personal Loans®
5.99 - 35.89%$1,000 - $35,0000.25 - 8 yearsNo origination fee.Apply now
CashUSA
5.99 - 35.99%$500 - $10,0000.25 - 6 yearsNoneApply now
5.99 - 24.99%$5,000 - $40,0002 - 5 years5%Payoff®
Marcus by Goldman Sachs
6.99 - 19.99%$3,500 - $40,0003 - 6 yearsNo origination fee.
6.45 - 20.49%$5,000 - $100,0002 - 7 yearsNo origination fee.LightStream
6.95 - 35.99%$1,000 - $50,0003 - 5 years8%Upstart
5.94 - 35.97%$1,000 - $50,0003 - 5 years2.9 - 8%Upgrade
5.99 - 29.99%$2,000 - $35,0003 - 5 years0.99 - 5.99%Best Egg
6.99 - 24.99%$2,500 - $35,0003 - 7 yearsNo origination fee.Discover Bank
9.95 - 35.99%$2,000 - $35,0002 - 5 years4.75%Avant
5.99 - 19.63%$5,000 - $100,0003 - 7 yearsNo origination fee.SoFi
LendingClub
8.05 - 35.89%$1,000 - $40,0003 - 5 years3 - 6%
7.95 - 35.99%$2,000 - $40,0003 - 5 years2.41 - 5%Prosper

Lenders description

Payoff®

Payoff® is a California-based, peer-to-peer lending platform. If you’re having difficulties with high-interest debt on various credit cards and have a fair credit score of at least 640 - consider a Payoff® debt consolidation loan. The loan amount range is $5,000 - $40,000, while the APRs go from 5.99% up to 24.99%. However, note that for a loan amount above $15,000, the minimum APR is 6.99%. There is an origination fee of up to 5%, but there are no other fees (late fee, prepayment fee, application fee, etc.). You can select a term from 24 - 60 months. You can see what origination fee and APR would be applied to your loan if you allow for a soft inquiry; a hard inquiry is performed only in the final phase of the process. Payoff® offers benefits such as free FICO credit score access and customer support by its Member Experience Team. Payoff® loans aren’t available in the states of Massachusetts and Nevada.

Read more about Payoff® Debt Consolidation Loan

Marcus by Goldman Sachs

Marcus is an online consumer lending and banking branch of investment bank Goldman Sachs. In addition to savings accounts, it also offers personal loans with a minimum amount of $3,500 and up to $40,000. Loans have APRs that vary from 6.74 - 19.74% and terms from 36 - 72 months. It's worth noting that Marcus by Goldman Sachs offers one of the best high-limit APRs, and it has no fees at all (not even an origination fee!). A credit of at least 660 is required to get approved, but you can check whether you pre-qualify. Other attractive features include a flexible monthly payment option (change monthly payment date up to three times) and a 0.25% discount if you set up autopayments. We advise checking out Marcus's website, which is very transparent and informative for any additional information.

Read more about Marcus by Goldman Sachs Debt Consolidation Loan

LightStream

LightStream is an online consumer lending division of SunTrust Bank. A LightStream personal loan can be used for all purposes, except educational, business, and refinancing an existing LightStream loan. Its APRs are competitive, with a minimum of 2.99% and a maximum of 20.49% if you sign up for AutoPay. If not, you’ll get a 0.5% higher rate. You won’t have to pay anything else on top of interest since there are no fees. As for the loan amount range, although wide, it starts pretty high with a minimum amount of $5,000 and a maximum of $100,000. The terms range is flexible, from 2 years and up to 7. LightStream requires applicants to have good-to-excellent credit to get approved, but a specific credit score is not disclosed on the website. Unfortunately, it doesn't offer pre-approvals. So, to find out your loan rates and terms, you'll have to apply, and your credit report will undergo a hard inquiry. Another feature worth mentioning is the Rate Beat program – LightStream claims to offer a 0.10% lower rate than one offered by a competitor (if eligible, and you'll need to provide appropriate evidence).

Read more about LightStream Debt Consolidation Loan

Upstart

Upstart is an AI lending platform partnered with banks to provide personal loans. For all those of you who need a loan but have a little credit history, an Upstart personal loan is a great option. Among other things, they also take into account your education. If you have a credit score of at least 580, you can still apply and be considered. The loan amount can be as low as $1,000 and up to $50,000. There are 3 and 5 loan terms with APRs going from 6.95 - 35.99%. If your loan gets approved, you could get the funds in a day (if you accept it and complete all necessary steps by 5 p.m. ET on a business day). When determining whether you qualify, Upstart will only perform a soft inquiry on your credit reports. After that, you'll be able to see your rates, and if you accept them, a hard inquiry will be made. Be aware of the few fees that come with this loan, like a 0% - 8% origination fee, a late payment fee ($15 or 5%, whichever is greater), and an ACH return or check refund fee ($15).

Upgrade, Inc

Upgrade, Inc is an online and mobile lender. You can borrow an amount from $1,000 up to $50,000 with an APR from 5.44 - 35.47%. By setting up Autopay and paying off a part of your debt directly, you'll get the lowest rates. The APR mainly depends on things like your credit score and history, and loan term. Upgrade, Inc charges an origination fee that can be a minimum of 2.9% and a maximum of 8%. Loans have repayment terms of 2 years up to 7. If approved, you'll usually get the loan funds within a day but up to 2 weeks if sent directly to your creditor. Upgrade also allows you to check out your rates only with a soft inquiry that doesn't affect your credit score. Minimum credit score or other requirements aren’t disclosed on the website. A unique feature here is Credit Health. It consists of several tools that offer better insight and understanding of your financial situation. For example, there's a credit score simulator that shows you several different scenarios to see how certain actions may impact your credit score. You also get tailored tips based on your credit history, access to your credit score, helpful resources to reach your full credit potential, weekly credit score updates, and many others.

Read more about Upgrade Debt Consolidation Loan

Best Egg

Best Egg is an online lending platform that offers several types of personal loans funded by the Cross River Bank. The APR range is great, with the low limit being 5.99% and the high limit 29.99%. To be eligible for the lowest APR of 5.99%, you're going to need a credit score of at least 700 and a minimum individual annual income of $100,000. The minimum loan term is 3 years, and the maximum is 5 years, while the loan origination fees vary from 0.99 - 5.99%. A loan with a 4-year term or longer will have at least a 4.99% origination fee. You can check your loan rates with a soft credit inquiry. Once approved and verified, you'll get the funds in one to three business days. The loan amount range is $2,000 - $35,000; different minimum amounts apply to those from Massachusetts ($6,500), New Mexico and Ohio ($5,000), and Georgia ($3,000). You can also get a second Best Egg loan if the existing loan balance with them doesn’t exceed $50,000. The platform takes pride in the A+ rating it holds with the Better Business Bureau.

Read more about Best Egg Debt Consolidation Loan

Discover Bank

Discover Bank is a digital bank and payment services company. Besides personal loans, it also offers credit cards, mortgage refinancing, student loans, etc. Loans are relatively affordable, considering there's no origination fee, and the APRs range from 6.99 - 24.99%. The minimum loan amount you can apply for is $2,500, and the maximum is $35,000. Additionally, you can choose between terms from 3 and up to 7 years, no matter the amount. They claim you can get a decision and funding as soon as one day (if all application documents are in order), and there's an option to transfer funds directly to creditors. An excellent flexible feature is 30 days to change your mind and return the funds without interest. Note that if you've chosen funds to go directly to creditors, Discover might not be able to get them back, and you'll have to reimburse them for that amount. To be considered for a personal loan, a minimum household income of $25,000 is required. A minimum credit score requirement is not disclosed on the website. If you fail to pay the monthly amount due on time, a late fee of $39 will be charged.

Read more about Discover Debt Consolidation Loan

Avant, LLC

Avant, LLC has its headquarters in Chicago and partners with WebBank to offer personal loans to middle-income consumers for several purposes, including debt consolidation, home improvement, or unexpected costs. The minimum loan amount you can borrow is $2,000, while the maximum is $35,000. The loan amount range is typical for a personal loan, but the APRs are higher than usual. An APR of 9.95% is the low limit, and it can be up to 35.99%. On top of that, there's an upfront administration fee, up to 4.75%, that is deducted directly from your loan. However, they approve applicants with a credit score of 600 that otherwise wouldn't have much chance of getting a personal loan elsewhere. Most of their customers have a credit score between 600 and 700. The loan term ranges from 24 - 60 months years. Avant, LLC will perform a soft inquiry if you want to see your rates. Of course, in the finalization process, a hard inquiry is performed. If approved, you will get funding the next business day. Avant, LLC charges a late fee (amount and time of application vary by state) and a dishonored payment fee (if a scheduled payment is returned unpaid).

Social Finance, Inc

Social Finance, Inc (SoFi) is a finance company that offers a variety of products like loan refinancing, investing, insurance, credit cards, debt consolidation, and many others. To be eligible for a personal loan, you must meet several standard requirements like having the appropriate age to enter into a binding contract and be employed or have sufficient income or an employment offer starting within the next 90 days. A specific credit score requirement is not listed on the website. What’s great is that besides U.S. citizens and permanent residents, certain visa holders could be eligible too if they have 2 years left until their visa’s expiration date. The APR range is excellent, starting from 5.99% and climbing up to 18.85%. The low rates and the fact that there are no fees make this personal loan an affordable option worth considering. A soft inquiry will allow you to check out your rates. Loan amounts range from $5,000 - $100,000, while loan terms go from 36 - 84 months years. Social Finance, Inc also allows cosigners, and you can have more than one loan with them (restrictions apply).

Read more about SoFi Debt Consolidation Loan

LendingClub

The LendingClub is a peer-to-peer online lending platform that offers personal loans to consumers. According to their website, you can apply even with a lower score, but a good credit score of at least 670 will give you favorable approval odds. APRs start high, at 8.05%, and can be up to 35.89%. The loan term can be either 3 or 5 years, and the amount ranges from $1,000 - $40,000. A one-time origination fee in a 3 - 6% range will also be charged if approved for the loan. There are a few other fees to keep in mind: unsuccessful payment fee ($15) and late payment fee (5% of the amount, or at least $15). A loan can have a co-applicant, and you can check your rates without affecting your credit score.

Read more about LendingClub Debt Consolidation Loan

Prosper Funding LLC

Prosper Funding LLC is a peer-to-peer lending marketplace backed by investors like Sequoia Capital and Francisco Partners. There are few minimum criteria you'll need to meet to be eligible for a Prosper loan. These include a credit score of at least 640, fewer than five credit inquiries in the last 6 months, a debt-to-income ratio of 50% or less, and a few others. Since Prosper allows for joint loans, the same requirements apply to both co-borrowers. You can also apply for a second loan (restrictions apply). The APR range is 7.95 - 35.99%, while the amount range is $2,000 - $40,000. There are quite a few fees to keep track of, including an origination fee (2.41 - 5%), check payment fee (5% or $5, whichever is greater), late fee (5% or $15, whichever is greater) and insufficient funds fee ($15 per failed or returned payment). A great feature that provides helpful flexibility is the option to change your monthly payment due date. They're a bit less flexible regarding loan terms; there are only two options available – 36 - 60 months years.

Read more about Prosper Debt Consolidation Loan

What Is Debt Consolidation?

If you’ve found yourself in a situation where you’re struggling with high-interest debt, you’re not alone. Just to give you a better idea, in the last quarter of 2020, credit-card loans in the U.S. were $820 billion. Charging a purchase on your credit card is easy to make but hard to pay off due to credit cards’ high APRs. The average American household has a credit card debt of $5,315. If you're also facing this problem, this article will be of great help. Let's start by explaining what debt consolidation is.

What is debt consolidation?

Debt consolidation is when you combine several debts you already owe together into a single, new account. That basically means that instead of having several monthly payments, now you’ll have one, preferably with a lower overall interest rate. There are several ways to consolidate your debt, and we mention some of them in the next section.

Best Ways to Consolidate Debt

Debt consolidation loans fall under the personal loans category and allow individuals to combine several high-interest debts into one. A debt consolidation loan's purpose is to help you pay off various unsecured loans like credit card debt, student loans, or medical bills. The consolidation loan interest rate stays the same throughout the repayment period, so you only make one fixed monthly payment.

Balance transfers credit cards allow you to transfer high-interest debt from another credit card and typically come with intro APR offers during which you can pay off debt interest-free. These interest-relief periods can last from a year and up to 20 months. Still, be aware that your balance will start accruing interest if your debt isn't paid off in full when the intro period ends. As we all know, credit card interest is definitely not cheap.

Home equity loans or home equity lines of credit are loans secured by your house, which means lower interest rates compared to personal loans. However, be careful because if you default, you could lose your home.

401(k) loan is also an option, although not an advisable one. The benefits are lower interest rates than personal loans, and they don't show on your credit report. But, on the other hand, it reduces retirement funds, and if you can't repay, there will be a hefty penalty and taxes on the outstanding balance. Also, if your employer sponsors the plan and you quit or lose the job, the loan will be due on Tax Day (April 15) in the next year. Otherwise, they’re usually due in around 5 years.

How do Debt Consolidation Loans work?

The process of debt consolidation loans looks like this:

  1. Prequalification – Most lenders allow you to check potential loan rates and minimum amount by performing a soft inquiry on your credit report that doesn't affect your credit score. Note that debt consolidation loans have fixed APRs that stay the same for the loan's lifetime.
  2. Selecting loan terms – Once you're sure about applying for a particular loan, you'll be required to choose the terms – payment due date, loan amount and term, and other features.
  3. Applying and finalization - With applying, you agree to the loan's interest rates and fees, so make sure to read the terms and conditions thoroughly. Once you confirm them, the lender proceeds to perform a hard inquiry on your credit reports to determine creditworthiness.
  4. Get approved and funded – Hopefully, your loan will get approved, in which case you either receive the funds directly or some lenders offer the option to transfer the funds directly to creditors.

Will debt consolidation affect your credit score?

Debt consolidation does affect your credit score in several ways.

First, the hard inquiry by the lender will temporarily hurt your credit score. This won’t matter much in the long run if you get approved and pay off the debt on time.

The drop that'll follow in your credit utilization ratio will help your credit score. The credit utilization ratio is the amount of credit you're using divided by your credit limit. With debt consolidation, you'll be paying off credit card debt, thus decreasing your credit utilization ratio. Of course, this can be a two-edged sword. You must be careful not to get carried away with credit card spending once you free up your credit limit. Otherwise, you'll just end up in more debt than before.

Finally, if you pay off your debt consolidation loan on time without adding new debt, your credit score will see an improvement.

Tips for Comparing Personal Loans for Debt Consolidation

Many lenders today offer debt consolidation programs and loans, making it challenging to decide on one. It can be an exhausting process, but we advise you to take your time. This is an important decision that’ll affect your future financial stability. We’ll give you some tips and features to consider when choosing the right debt consolidation loan.

  • Compare Annual Percentage Rates (APR)– first things first. Getting a debt with the lowest interest available to you should always be a priority. Most of the lenders on our list allow you to check rates with a soft credit inquiry. Use this tool to find out with which lender you’ll get the cheapest rates.
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Payoff®, Best Egg and SoFi all have a low minimum APR of 5.99%. However, usually, only those with excellent credit get the lowest APRs. If that's not your case, be aware of the high APR limit as well. For example, Best Egg's APR can be up to 29.99%, which means a potentially very expensive loan.

  • Be aware of fees– getting a low APR does not necessarily mean an affordable loan. If you’re careless and don’t pay attention to fees, your loan can suddenly get very expensive. Most loans will charge an origination fee that’ll be deducted from your loan amount.
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For example, if you get approved for a $10,000 loan with a 5% origination fee, you’ll get $9,500 on your account. Typical fees, among others, are a late payment fee and an unsuccessful payment fee. The best would be to get a loan with no fees, like the Marcus by Goldman Sachs Debt Consolidation Loan or LightStream.

  • Don’t forget to consider loan terms – while some lenders offer several loan term options, others can be pretty limited, offering a choice between only two loan terms. This can be an important factor. For instance, if you don't need much time to pay off the loan or its amount is not that big, get a loan with a shorter term. A loan with a long term won’t be suitable because you’ll end up paying more interest than you need to.
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Debt consolidation loans by Payoff®, LightStream, Upgrade, Inc, and Avant, LLC offer a minimum loan term of 2 years. If you'll need more time and would rather have smaller monthly payments over a more extended period, go for the longest term available. LightStream offers the longest loan term – 12 years. Still, it doesn’t mean you’ll be approved for it.

  • Loan amount – there’s no guarantee you’ll be approved for a loan with the exact amount you need. That’s why, as we mentioned with APRs, compare offers from several lenders to see which one is the closest to your desired amount.
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For example, LightStream, Best Egg, and SoFi offer a maximum loan amount of $100,000. Another issue is that you may need only a small amount and most lenders have starting amounts of $4,000-5,000. Consider then an Upstart, Upgrade, Inc, or a Lending Club loan, since they have a minimum loan amount of only $1,000.

  • Flexibility – loan terms are typically several years. Many things can change in the meantime, like your employment status and financial needs, among others. For example, if you change your job and have a different pay date than with the previous employer, you might want to change your loan payment date.
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The Marcus by Goldman Sachs loan offers excellent flexibility with the option to change your monthly payment due date up to 3 months. It also comes with a 0.25% discount incentive if you decide to use autopayments.

Regarding flexibility, it’s important to mention the early payment fee that comes with some loans. It’s a fee charged by the loan issuer if you make a payment towards the loan earlier than when it’s due. All the loans on our list don’t charge such a fee, but if you go for one we haven’t mentioned here, double-check for this fee.

Benefits of a debt consolidation loan

  • Reduces interest – probably the most significant benefit of debt consolidation loans. The average credit card APR is 16.43%, while the average personal loan APR is 9.34%.
  • Improves credit score– as we've mentioned, a personal loan will cause your credit utilization ratio to fall, which means an improved credit score. Also, if you make all your payments on time, you'll see further improvement.
  • More convenient– juggling several monthly payments can be stressful, and there is a greater probability of missing a payment. Combining all those payments into a single monthly one will make your life easier.
  • Lower monthly payment– if you're feeling overwhelmed by debt and it'll take a few years to pay it off, a debt consolidation loan will give you that. You can spread your loan over several years, allowing for lower monthly payments you can afford.

What Should You Do Before Applying for a Debt Consolidation Loan?

Before applying for a debt consolidation loan, you should do your research, and this article is a great start. Be realistic about your financial situation and the amount you'll need to repay the loan. Take a good look at all your outstanding balances, then plan a budget and schedule how to pay them all off. This is essential if you want to make the best decision. We know you probably want to get funding ASAP, but don't rush into it. Take your time, shop around, and compare quotes from several lenders.

Alternatives to a debt consolidation loan

As we’ve already mentioned, other alternatives to a debt consolidation loan include balance transfer credit cards, home equity loans, or home equity lines of credit and 401(k) loans.

FAQ

  • What are the best debt consolidation companies?

    Our list consists of great, legitimate lenders. So, it might be better to focus on loan terms that best fit your needs rather than the company's characteristics.
  • What are other lenders to consider?

    Peerform (peer-to-peer online lending platform) and Lending Point (online personal loans) are other great lenders to consider.
  • Is a debt consolidation loan a good idea?

    If you’re responsible and make your payments on time, it’s a great idea! Not only will it consolidate all your monthly payments into one, but it might also reduce the interest you pay, thus saving you money.
  • Who Can Get a Debt Consolidation Loan?

    Even those with bad credit or limited credit history can get a debt consolidation loan. Still, only those with excellent credit will qualify for the best rates and most favorable terms.
  • Are peer-to-peer lending platforms legit?

    Not only are peer-to-peer lending platforms legit, but they can be a great choice for a debt consolidation loan, especially for those with bad credit. Of course, you should always be aware of internet scams that sound too good to be true. It's best to stick with reputable peer-to-peer platforms like Payoff®, LendingClub, Prosper Funding LLC, and Peerform.

Financial and product expert

hv@myfin.us