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A personal loan for debt consolidation can streamline multiple high-interest debts into one payment and help you pay off debt more quickly — even if you have bad credit.
Here's how to get a debt consolidation loan in five steps.
1. Check your credit score
Start by checking your credit score. A bad credit score (300 to 629 on the FICO scale) might not disqualify you for all loans, but consumers with good to excellent credit scores (690 to 850 FICO) are more likely to win approval and get a low interest rate.
Ideally, the new debt consolidation loan has a lower rate than the combined interest rate on your other debts. A lower rate reduces the overall cost of your debt and shortens the repayment period.
If you don’t need the loan immediately, take some time to build your credit to qualify for a lower-rate loan. Here's how:
Catch up on late payments. Late payments are reported to credit bureaus at 30 days past due, which can drop your credit score by 100 points or more. If you’re within the 30-day window for a debt payment, there's still time to submit it.
Check for credit report errors. Errors on your credit report, like payments applied to the wrong debts or accounts incorrectly marked closed, could be hurting your score. Check your credit reports for free at AnnualCreditReport.com and dispute any mistakes you find.
Repay small debts. Debts owed account for 30% of your credit score. If you can, pay down any high-interest credit cards before you consolidate. This will improve your debt-to-income ratio, which can help you get a lower rate on the consolidation loan.
2. List your debts and payments
Make a list of the debts you want to consolidate — credit cards, store credit cards, payday loans and other high-interest debts — and add up the total amount due. You’ll want your debt consolidation loan amount to cover the sum of these debts.
Add up the amount you pay each month toward your debts, and check your budget for any spending adjustments needed to continue debt repayments. The new loan should have a lower rate and a monthly payment that fits within your budget. Commit to a repayment plan with your budget in mind.
Debt consolidation calculator
Use the debt consolidation calculator below to see whether it makes sense to consolidate. After you enter your debts, you will see typical rates from lenders and any potential savings if you consolidated at a lower rate.
3. Compare loan options
Shop for a loan that’s right for you. Online lenders, credit unions and banks all provide personal loans for debt consolidation.
Online lenders cater to borrowers with all ranges of credit, although loans can be costly for those with bad credit. Most online lenders let you pre-qualify so you can compare personalized rates and terms with no impact to your credit score.
Bank loans work best for those with good credit, and customers with an existing banking relationship may qualify for a rate discount.
Look for lenders that offer direct payment to creditors, which simplifies the consolidation process. After the loan closes, the lender sends your loan proceeds to your creditors at no extra cost.
Consider other features that some lenders offer, like having payments reported to all three major credit bureaus, flexible payment options and financial education.
4. Apply for a loan
When you’re ready to apply for the loan, gather documents such as proof of identity, proof of address and income verification.
Take the time to read the loan document’s fine print. Any extra fees, prepayment penalties and whether the lender reports payments to the credit bureaus can affect your credit score as well as the total cost of the loan.
If you don’t meet the lender’s requirements, consider adding a co-signer with good credit to your application. This can help you get a loan that you wouldn’t qualify for on your own.
5. Close the loan and make payments
Now that you’ve found and been approved for the loan you want, there’s one important step left.
If the lender offers direct payment, it will disburse your loan proceeds among your creditors, paying off your old debts. Check your accounts for a zero balance or call each creditor to ensure the accounts are paid off.
If the lender doesn't pay your creditors, then you’ll repay each debt with the money that’s deposited to your bank account. Do this right away to avoid additional interest on your old debts and to eliminate the temptation to spend the loan money on something else.
Finally, within about 30 days of receiving the debt consolidation loan, make your first payment.
Which lender is right for me?
NerdWallet has reviewed more than 30 lenders to help you choose one that’s right for you. Below is a list of lenders that offer the best debt consolidation loans.
Typical APR range
Good credit and no fees.
6.74% - 19.74%
Good credit and low rates.
2.49% - 19.99%
Excellent credit and free financial advising.
4.99% - 19.63%
Excellent credit and flexible payment options.
6.99% - 24.99%
Fair credit and paying off credit card debt.
5.99% - 24.99%
Fair credit and direct payment to creditors.
5.94% - 35.47%
Bad credit and borrowers with no credit history.
6.76% - 35.99%