Sat. Jan 16th, 2021

With interest rates at record lows, paying off your debt with a low-interest debt consolidation loan is easier and faster than making minimum payments on credit cards. One of these loans could come in handy if you need to consolidate credit card debt or other bills accumulated during the coronavirus crisis.

A debt consolidation loan is a type of personal loan that combines high-interest debts and allows for one low-interest monthly payment. Debt consolidation loans can be used to pay unsecured debts, which may include:

This guide to the best debt consolidation loans explains the borrowing process and how to pick the right personal loan for your needs.

  • What is a debt consolidation loan?
  • How do debt consolidation loans work?
  • How can you get a debt consolidation loan?
  • Do debt consolidation loans hurt your credit?

What Is the Best Debt Consolidation Loan Company?

Discover
6.99% to 24.99% APR
$35,000 Max. Loan Amount
660 Min. Credit Score

Peerform
5.99% to 29.99% APR
$25,000 Max. Loan Amount
600 Min. Credit Score

Upstart
6.18% to 35.99% APR
$50,000 Max. Loan Amount
620 Min. Credit Score

U.S. Bank
Not disclosed APR
$25,000 Max. Loan Amount
Varies Min. Credit Score

Lender

Learn More
6.99% to 24.99% APR
$35,000 Max. Loan Amount
660 Min. Credit Score

Lender

Learn More
5.99% to 29.99% APR
$25,000 Max. Loan Amount
600 Min. Credit Score

Lender

Learn More
6.18% to 35.99% APR
$50,000 Max. Loan Amount
620 Min. Credit Score

Lender

Learn More
Not disclosed APR
$25,000 Max. Loan Amount
Varies Min. Credit Score

Lender

Learn More

APR

Max. Loan Amount

Min. Credit Score

3.49% to 16.79% $100,000 660

5.98% to 35.89% $40,000 600

6.99% to 24.99% $35,000 660

5.99% to 29.99% $25,000 600

6.18% to 35.99% $50,000 620

6.99% to 28.99% $40,000 Not disclosed

7.99% to 29.99% $40,000 620

Not disclosed $25,000 Varies

7.16% to 29.99% $45,000 620

6.49% to 17.99% $20,000 Not disclosed

Best for low interest

LightStream is the national online consumer lending division of SunTrust Bank, which last year merged with BB&T to become Truist. LightStream’s online personal loans may allow you to borrow up to $100,000 and use the money for nearly any reason. Borrowers in every state can access these personal loans.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 144 months
  • Better Business Bureau rating: A+

Best Features

  • Offers more than 30 different loan uses

  • Approves loans of up to $100,000

  • Charges no origination, prepayment or late fees

See full profile

Best for fair credit

LendingClub has processed more than $44 billion in loans since 2007. Borrowers with fair to excellent credit in 49 states can access LendingClub loans from $1,000 to $40,000.

Before You Apply

  • Minimum FICO credit score: 600
  • Loan amounts: $1,000 to $40,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: not rated

Best Features

  • Provides loans of at least $1,000

  • Accepts joint applications

  • Accommodates borrowers with fair to excellent credit

See full profile

Best for low costs

Discover may be known for credit cards but also offers fixed-rate personal loans of up to $35,000 to borrowers in every state. The lender boasts no fees as long as you pay on time.

Before You Apply

  • Minimum FICO credit score: 660
  • Loan amounts: $2,500 to $35,000
  • Repayment terms: 36 to 84 months
  • Better Business Bureau rating: A+

Best Features

  • Offers customizable loan terms from 36 to 84 months

  • Provides borrowers free access to their FICO credit score

See full profile

Best for poor credit

Peerform is a peer-to-peer lending platform that connects borrowers nationwide with investors who finance loans. Borrowers with credit scores of 600 or higher may qualify for loans of up to $25,000.

Before You Apply

  • Minimum FICO credit score: 600
  • Loan amounts: $4,000 to $25,000
  • Repayment terms: undisclosed
  • Better Business Bureau rating: A+

Best Features

  • Makes loans to some fair-credit borrowers

  • Allows borrowers to complete the entire loan process online

  • Delivers good customer service

See full profile

Best for customer service

Upstart is a national online lender that uses artificial intelligence to automate more than two-thirds of its lending decisions. Borrowers with fair to excellent credit can connect with investors willing to make loans of up to $50,000. Upstart has originated more than 500,000 loans since its founding in 2012.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $1,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Sometimes accepts applicants with fair or no credit history, using artificial intelligence to quantify risk

  • Offers loans for as little as $1,000

  • Provides a financial fitness dashboard that allows borrowers to modify payment dates and view credit score updates

See full profile

Best for no origination fee

Marcus, the online consumer banking and lending arm of Wall Street giant Goldman Sachs, offers personal loans for up to $40,000. When you pay your loan on time and in full for at least 12 consecutive months, you can skip one payment. Interest will not accrue, and the lender will simply extend your loan for one month.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $3,500 to $40,000
  • Repayment terms: 36 to 72 months
  • Better Business Bureau rating: A+

Best Features

  • Charges no fees on personal loans

  • Allows borrowers to skip one payment and accrue no interest after making at least 12 consecutive on-time payments

See full profile

Best for fair credit

FreedomPlus is an online lender making personal loans from $7,500 to $40,000. Loans are available to qualified borrowers with a minimum FICO credit score of 620.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $7,500 to $40,000
  • Repayment terms: 24 to 60 months
  • Better Business Bureau rating: unrated

Best Features

  • Makes loans to some borrowers with fair credit

  • Provides loans of up to $40,000

  • Offers same-day loan approval and funding in as little as 48 hours

See full profile

Best for short-term loans

U.S. Bank offers short- and long-term personal loans of up to $25,000 with fixed interest rates. The lender accepts co-signers and charges no origination fee.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $100 to $25,000
  • Repayment terms: three to 60 months
  • Better Business Bureau rating: A

Best Features

  • Pays out loan funds relatively quickly

  • Charges no origination fee

See full profile

Best for online service

Rocket Loans, a national online lender, makes personal loans of up to $45,000 for people with fair to excellent credit in all 50 states. Borrowers can use the loans to consolidate debts, to complete home improvements, to pay medical bills, and to fund business operations or other needs.

Before You Apply

  • Minimum FICO credit score: 620
  • Loan amounts: $2,000 to $45,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Provides same-day funding for loans of up to $25,000

  • Applies no prepayment penalties

  • Offers an online application process

See full profile

Best for no minimum loan amount

You don’t have to be a part of the military to join PenFed Credit Union, although the financial institution serves members of that community. Eligible members and co-borrowers in every state can apply for personal loans.

Before You Apply

  • Minimum FICO credit score: undisclosed
  • Loan amounts: up to $20,000
  • Repayment terms: up to 60 months
  • Better Business Bureau rating: A+

Best Features

  • Offers terms of up to 60 months

  • Charges no origination fees

  • Provides borrowers immediate access to funds upon loan approval

See full profile

What Is the Best Interest Rate on a Debt Consolidation Loan?

When you shop around for the best personal loan interest rate, you can save. Compare your personal loan offers with national average trends for personal loans to know if you’ve found a good deal.

The average personal loan rate is 9.84%. Last week’s average rate was 9.83%.*

*Rate as of Dec. 4, 2020

Personal Loan Finder

Select your desired personal loan amount and your loan purpose, your credit score range, and your state to see estimated annual percentage rates and loan term lengths.

U.S. News Survey: Debt Consolidation Can Slash Debt Payments, but Many Consumers Don’t Shop for Loans

Debt consolidation loans can help consumers better manage debt by cutting interest charges and streamlining bill payment. Many consumers surveyed said they were able to use a debt consolidation loan to lower or eliminate debt, lower monthly payments or improve their credit score.

  • Consumers are typically consolidating less than $20,000 of debt, often credit card debt.
  • Interest charges are the largest challenge for many consumers facing debt.
  • Consumers often turn to debt consolidation as a way to streamline payment.
  • Major benefits of debt consolidation loans include lowering or eliminating debt and monthly payments and credit score improvement.
  • Some consumers change the way they use credit cards after taking out debt consolidation loans.
  • Many consumers don’t bother spending time researching loan options or getting loan preapprovals.

A majority of consumers consolidated less than $20,000 of debt.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

Interest charges are a big challenge for borrowers.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

The ability to combine monthly payments was the top reason those surveyed named for their decision to get a debt consolidation loan.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

Lowering or eliminating debt was the top outcome of debt consolidation for the largest proportion of consumers.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

Many people changed their credit card use after consolidating debt.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

More than a quarter of consumers didn’t spend any time researching debt consolidation loans.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

Many people didn’t get preapprovals.

(CONDUCTED USING GOOGLE SURVEYS – FEBRUARY 2020)

  • U.S. News ran a nationwide survey through Google Surveys in February 2020.
  • The survey sample came from the general American population, and the survey was configured to be representative of this sample.
  • The survey asked 10 questions related to debt consolidation loans.

How Do Debt Consolidation Loans Work?

A debt consolidation loan rolls your credit cards, medical bills and any other debts into one monthly payment that may be at a lower interest rate than your credit cards.

A debt consolidation loan may reduce the cost of paying off debt and help you wipe out high-interest credit card debt. If you have multiple credit cards with high rates, interest charges can accumulate and make paying off your balances difficult.

Interest on debt consolidation loans, unlike credit cards, isn’t compounded – compound interest is interest charged on interest. The rate typically stays the same for the life of the loan.

Also, unsecured personal loans for debt consolidation are widely available through banks, credit unions and online lenders. Some debt consolidation companies offer instant prequalification and approval online. Prequalifying can make comparing loan offers and closing costs easy as lenders estimate your terms using a soft credit check that doesn’t affect your credit score.

Because collateral is not required for these loans, you must meet the lender’s credit and debt-to-income ratio requirements. Your actual rate when you apply depends on your creditworthiness, and the better your credit score, the more likely that you will get a low interest rate.

Are Debt Consolidation Loans a Good Idea?

Debt consolidation loans can be a good idea if they help you save money on interest and result in lower monthly payments or potentially increase your credit score. These are some of the ways debt consolidation can help:

  • Interest savings. If you have high-interest debt, a debt consolidation loan can save money with a low interest rate. You will save money on interest, for example, if you combine two credit card balances with annual percentage rates of 16.24% and 23.99%, respectively, into a debt consolidation loan with a 15% APR. “Rates can be considerably lower than credit card rates,” says John Ulzheimer, a credit expert who has worked at Equifax and Experian. Also, loans have to be paid off in a designated period of time, which gives you an end date for your debt. “You can’t say the same about credit cards,” he adds.
  • Lower monthly payment. A debt consolidation loan may make it easier to achieve on-time payments by spreading out your debt payments over several years. A history of on-time payments can help your credit score.
  • Improved credit score. By taking out a new loan and leaving consolidated accounts open but unused, you will have more total available credit. This results in a lower credit utilization ratio, which can increase your credit score.

Do Debt Consolidation Loans Hurt Your Credit Score?

Debt consolidation loans generally offer a boost to your credit score as long as you make your payments on time. But that’s only if you use them as intended: to pay off your debt and not to add to it.

“You’ll be converting score-damaging revolving debt into practically benign installment debt. As long as you don’t charge up your cards again, you’ll be happy with your new scores,” Ulzheimer says.

Still, consider these dangers of debt consolidation loans:

  • You may end up paying more interest. There’s no guarantee that your debt consolidation loan will have a lower interest rate than your credit card rates or other types of debt. And if you extend the repayment term length, you might pay more interest in the long run.
  • You may end up adding more debt. Consolidating credit card debt leaves cards free to use again and add to your debt.
  • Other options may offer better savings. A 0% balance transfer credit card or home equity loan could offer a lower interest rate option.

Can You Get a Debt Consolidation Loan?

Before you shop around for a debt consolidation loan, consider whether you’re likely to be approved. Most lenders look at:

  • Your credit score. Debt consolidation loan companies typically have a minimum credit score requirement of at least fair or good credit. To get a low interest rate, you’ll need a higher credit score. A fair credit score signals that you are a greater risk to lenders, and you will be quoted a higher interest rate than another customer with good credit. With very good or excellent credit, you could qualify for a lender’s lowest consolidation loan rate. You might not meet a lender’s minimum credit score to qualify for a debt consolidation loan with bad credit.
  • Your income. Lenders may require a minimum annual income and will consider your debt-to-income ratio. A debt-to-income ratio is the percentage of your gross monthly income that goes toward paying your debts. A lower ratio is better because it shows that you don’t spend too much of your income paying debts. Some debt consolidation loan companies allow debt-to-income ratios as high as 50%, meaning your monthly debt obligations should add up to no more than half of your gross monthly income.
  • Your credit history. Most lenders look for a credit history free of bankruptcies, tax liens, repossessions or foreclosures. Some lenders allow co-signed or joint applications because they can reduce the risk of lending. But if you use a co-signer, proceed with caution. If you use a co-signer to help you qualify for a loan and you default, you may damage your relationship as well as your co-signer’s creditworthiness.

Which Debt Consolidation Loan Company Is the Best?

The best debt consolidation loan company for you is one that will approve your loan at a low interest rate, with terms and service that meets your needs.

Evaluate debt consolidation loan companies based on these features to find the best fit:

  • Interest rates
  • Loan terms
  • Fees and penalties
  • Repayment options
  • Customer satisfaction ratings

Interest rates. A lower interest rate makes your loan cheaper, so this should be the primary factor when comparing debt consolidation loan companies. But make sure you’re comparing apples to apples. Most lenders offer fixed-rate personal loans with rates that don’t change, while others offer both fixed- and variable-rate loans.

A variable-rate loan may start with a lower interest rate compared with a fixed-rate loan but increase your rate – and your payment – if market rates rise. Some variable-rate loans have caps, which puts a limit on the interest rate.

Use prequalification or rate check tools from debt consolidation loan companies to compare rates and terms to expect based on your creditworthiness. Because prequalification should trigger just a soft credit check, you can shop around for consolidation loan rates without hurting your credit score.

Loan terms. Loan terms vary by lender but will include loan amount, repayment term length and details on disbursement. Prequalification can estimate how much you might borrow and for how long.

Lenders may also place restrictions on personal loan use. For example, some lenders restrict use to consolidating credit cards, medical bills and other unsecured debts, and most do not allow debt consolidation loans for college or business expenses.

Note that some lenders offer discounts if you sign up to make automatic payments each month from your bank account. A discount of 0.25% on your interest rate could be worth choosing this option.

Fees and penalties. Fees and penalties can increase the cost of your loan, making it more difficult to pay off your debt quickly. You may pay origination, prepayment and late payment fees.

Origination fees are charged by many, but not all, lenders for loan processing. Sometimes, lenders allow grace periods before they charge fees for late payments, if they charge them at all.

Typical late fees range from $15 to $39. Your lender could also charge a returned payment fee or check processing fee, which might cost about $15 each.

Repayment options. Make sure it’s easy to pay. Look for a lender that offers flexible payment options that work for you, whether that’s payment by phone, mail, wire transfer, app, online or autopayment. Some lenders have flexible repayment options that allow you to change your due date.

Customer service. Good customer service is important when you need help. Read personal loan reviews to find out what other consumers think of a lender you’re considering.

Loan reviews from customers can highlight what’s good or bad about a lender so you can find the best personal loans. Check the Better Business Bureau for lender ratings, reviews and complaints.

How Do You Get a Debt Consolidation Loan?

Getting a debt consolidation loan requires a few steps: prequalifying, choosing your loan terms, finalizing your application and closing.

1. Prequalify. Prequalifying uses a soft credit check to produce a rate quote, which will estimate the minimum loan amount you’re approved for and the interest rate.

2. Choose your loan terms. Your loan terms set the repayment schedule, loan amount and other features. Typical loan amounts range from $1,000 to $40,000, depending on your creditworthiness.

Most borrowers have between two and five years to repay their loans. You will confirm your interest rate and any origination fees – typically 1% to 5% of your loan.

3. Finalize your application. You’ll confirm the details of the loan and verify your identity, annual income and other qualifying information. Some lenders allow you to apply on a secure website.

The lender will pull your credit report to verify creditworthiness, which will result in a hard inquiry on your credit. Be certain of your choice when you apply because too many hard inquiries in a short period of time could pull down your credit score.

4. Get approved and close. Once approved, the loan will go through the closing process, and you will receive funds. Most debt consolidation loans provide wire transfers, but some offer direct payment to creditors or send a check to you for deposit in a bank account. You may receive funds as soon as the next business day.

What Is the Smartest Way to Consolidate Debt?

Debt consolidation loans are a good option for many people with debt, but they aren’t the only option. Debt consolidation comes in many forms, says Gerri Detweiler, education director of business credit website Nav.

Alternatives such as home equity loans and credit card balance transfers might be more attractive if you can’t qualify for the best personal loan with good repayment terms. If you qualify for debt consolidation loans with bad credit, Detweiler explains, they are probably going to be higher-cost loans, and consolidation might not make sense.

Here’s more about choices for consolidating debt:

Home equity loans. They generally have better interest rates than unsecured personal loans because using your home as collateral makes these loans less risky for lenders. And you can get lower monthly payments, as loan repayment term lengths can be 10 years or longer.

But home equity loans can be risky for consumers as well. You could lose your home to foreclosure if you can’t make your payments, and if you face bankruptcy, discharging a home equity loan compared with unsecured debt is much harder.

Balance transfer credit cards. A balance transfer card with a 0% introductory APR allows you to transfer credit card debt to the card and make interest-free payments on the new credit card balance for up to 21 months. You’ll also pay a fee of 3% to 5% of the balance you transfer.

By comparison, personal loans for debt consolidation could offer term lengths as long as 60 months, though you’ll have to pay interest.

Detweiler says 0% APR credit card offers can be a good choice, along with consolidating some debts. Sometimes it’s best to start by consolidating the highest-rate debt, she advises, and take care of the remaining debts after you pay that off, either with monthly payments or another debt consolidation loan.

Debt relief services. Certified nonprofit credit counselors can help you strategize how to pay off your debt and negotiate with creditors to lower your interest rates and fees. A counselor may recommend a debt management plan to pay your creditors. The plan may require fees, such as a setup fee and a monthly fee.

Debt settlement. Usually, for-profit debt settlement companies negotiate with creditors to settle your debt. But don’t expect to wipe out your debt for pennies on the dollar.

Debt settlement companies charge high fees and penalties and even higher interest rates. And you can damage your credit history if you stop paying your bills.

Consider debt settlement companies as alternatives to bankruptcy because the damaging effects to your credit report can be long lasting.

Bankruptcy. This is an option if you can’t pay your debts. It can be useful for out-of-control debt, but it comes with many consequences. Bankruptcy will hurt your credit and may remain on your credit report for up to 10 years.

You will lose all of your credit cards, some or all of your luxury possessions – such as designer clothes or multiple vehicles – and any property that is not exempt from sale.

Declaring bankruptcy is a last resort. But if you have serious debt and are being sued by creditors or have a pending foreclosure or repossession, bankruptcy can be a lifeline.

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

Getting a debt consolidation loan is a financial decision not to be taken lightly. Before you apply, do a little homework to avoid missteps and find the best deal.

These four moves can help:

1. Consider alternatives. You may pay less in interest with debt consolidation loan alternatives, such as a credit card balance transfer.

2. Establish a repayment plan and budget. Planning how you will make the new loan payments is essential, especially if you’ve struggled to keep up in the past. You can:

  • Assess your total debt by tallying up your credit card balances, student loans, car loans and other accounts.
  • Track your spending to see where your money goes each month, identifying areas to cut back.
  • Compare your debts with your expenses to determine how much to allot to paying down debt each month and to create a budget.

Once you know how much you can put toward your debt, make sure your loan terms work with your budget.
3. Shop around for the best quote. Compare options from a few debt consolidation loan companies to ensure that you’re getting the best debt consolidation loan rates and repayment terms you can afford. Most lenders offer rate quotes, which trigger soft credit inquiries that will not harm your credit score.

4. Avoid scams. Red flags include aggressive sales representatives, “guaranteed” approvals and quick-fix promises, as well as requirements such as upfront payments before loan approval.

“No lender should charge you upfront before you get the loan … and you certainly shouldn’t send money with a wire transfer or prepaid card,” Detweiler cautions.

5. Make a plan to avoid new debt. A debt consolidation loan can wipe the slate clean and allow you to start fresh with no credit card balances or other credit commitments. Although it may be tempting, avoid using your newly cleared accounts to shop or manage household expenses unless you can easily pay off the balances each month. You don’t want to create new debt to manage on top of your debt consolidation loan.

Advertising Disclosure: Some of the loan offers on this site are from companies
who are advertising clients of U.S. News. Advertising considerations may impact
where offers appear on the site but do not affect any editorial decisions,
such as which loan products we write about and how we evaluate them. This site
does not include all loan companies or all loan offers available in the marketplace.

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