Best Debt Consolidation Loans
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Best for No fees
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Best for Fast funding
Best for Low rates
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Paying off credit card debt
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NerdWallet’s guide to choosing the best debt consolidation loan
NerdWallet has reviewed more than 35 technology companies and financial institutions to find the best personal loans for consolidating debt. See our top picks above and keep reading for a guide to picking the best debt consolidation loan for you.
What is a debt consolidation loan?
A debt consolidation loan combines multiple unsecured debts — such as credit cards, medical bills and payday loans — into one fixed monthly payment.
A debt consolidation loan is usually a good idea if the interest rate on the loan is lower than the combined rates on your existing debts. With this lower rate, you’ll save money on interest and potentially pay off your debt faster.
How do debt consolidation loans work?
Online lenders, banks and credit unions offer debt consolidation loans. If you qualify, the lender deposits the loan into your bank account, and you use that money to pay off your debts. Some lenders send loan proceeds directly to your creditors, saving you that step.
Once you pay off your other debts, you make monthly payments toward the debt consolidation loan. Payments are fixed for the life of the loan, typically two to seven years.
Pros and cons of debt consolidation loans
Like with all financial decisions, you should carefully weigh the pros and cons of consolidating your debts before you apply for a loan. Here are the main benefits and drawbacks of debt consolidation loans to help you make an informed decision.
Pros of debt consolidation
Cons of debt consolidation
Pros of debt consolidation loans
You pay less in interest: By getting a debt consolidation loan at a lower rate than your current debts, you’ll save money on interest, which can make your debt more manageable.
You may get out of debt faster: Because you’re saving money on interest, you can use that savings to make larger payments on your loan and get out of debt even faster.
You have only one payment: Unlike juggling multiple credit card bills, you’ll have only one monthly payment if you combine your debts under a consolidation loan.
You have a clear finish line: A debt consolidation loan gives you an exact date you’ll be debt-free, which can help you stay motivated as you make the payments.
Cons of debt consolidation loans
You may not qualify for a low enough rate: Not all consolidation loans come with low interest rates, and if you have bad credit, you may not get a rate that’s lower than your current debts.
You still have debt you need to manage: Consolidating debt is a smart choice for many, but it’s important to remember the debt doesn’t disappear — it goes somewhere else. Most debt consolidation loans offer terms of two to seven years, so be prepared to stick to your monthly payments over that time period.
Consolidation won’t fix core spending issues: If you’re in debt because you struggle to stick to your monthly budget, a debt consolidation loan won’t fix that. It may even make things worse if you use your newly freed credit cards to rack up additional debt.
How to choose the best debt consolidation loan
When deciding between debt consolidation loans, compare these factors.
Annual percentage rates: The loan's annual percentage rate, or APR, represents its true annual cost and includes interest and any fees. Rates vary based on your credit score, income and debt-to-income ratio. Use APRs to compare costs between multiple loans. Choose a low rate with monthly payments that fit your budget.
Origination fees: Some lenders charge origination fees to cover the cost of processing your loan. This one-time fee typically ranges from 1% to 10% of the loan amount and is deducted from your loan proceeds or added to the loan balance. If the fee is deducted from your loan proceeds, you’ll need to request more than the sum of your debts to cover the fee and still have enough to pay your creditors.
Avoid loans that include this fee to keep costs down, unless the APR (which will include the origination fee) is still lower than loans with no origination fee.
Loan amounts and terms: Debt consolidation loans come in a wide range of loan amounts ($1,000 to $50,000) and repayments terms (two to seven years). Look for a lender whose loan product meets your debt payoff needs. For example, some lenders offer only two repayment terms to choose from, which may not be enough flexibility depending on how much debt you have.
Lender features: Some lenders offer consumer-friendly features like direct payment to creditors, which means the lender pays off your old debts once your loan closes, saving you that task.
Other features to shop for include free credit score monitoring and hardship programs that temporarily reduce or suspend monthly payments if you face a financial setback, such as a job loss.
Will debt consolidation hurt my credit score?
Consolidating your debt with a personal loan can help — and hurt — your credit score. When you use the loan to pay off your credit cards, you lower your credit utilization, which measures how much of your credit limit is tied up. Lowering your credit utilization can help your credit.
» COMPARE: Best credit card consolidation loans
On the other hand, applying for a loan requires a hard credit check, which can temporarily ding your credit score. And if you turn around and rack up new credit card debt, your credit score will suffer.
Making late payments on your new loan can also hurt your credit score, while on-time payments can help.
Ultimately, if you use the debt consolidation loan to pay off your debts and then pay off the new loan on time, the overall effect on your credit should be positive.
How to qualify for a debt consolidation loan
Build your credit: Loan approval is based mainly on your credit score and ability to repay. It may be possible to get a debt consolidation loan with bad credit, but borrowers with good to excellent credit (690 credit score or higher) have more loan options and may qualify for lower rates.
If you have fair or bad credit (689 credit score or lower), it can pay to build your credit before seeking a consolidation loan.
» COMPARE: Best debt consolidation loans for bad credit
Apply for a joint, co-signed or secured loan: Adding a co-borrower or co-signer to your application can help you qualify for a debt consolidation loan that you wouldn’t be able to on your own because of poor credit or low income. In a joint loan, both borrowers have equal access to the funds, unlike a co-signed loan, in which only the main applicant does. Co-borrowers and co-signers are on the hook for missed payments.
Some lenders may also offer a secured loan, which means you can back it with collateral, like your car or an investment account, to boost your chances of approval or get a better loan offer. But you risk losing the asset if you fail to repay the loan.
Consider different types of lenders: Compare offers from banks, credit unions and online lenders before choosing the best debt consolidation loan. While banks tend to have the lowest rates, credit unions and some online lenders may look more favorably on bad-credit applicants.
How to get a debt consolidation loan
1. Add up current debts and calculate the combined interest rate
The first step in getting a debt consolidation loan is having a clear picture of your current debt. You can use NerdWallet’s debt consolidation calculator to see your total balance, total monthly payment and combined interest rate across all debts.
You’ll want to keep two numbers in mind moving forward: Your total debt, because this is the loan amount you need to apply for, and your combined interest rate, because you’ll want a lower interest rate on your consolidation loan.
2. Pre-qualify and compare loan options
One of the best ways to compare loan offers is to pre-qualify with multiple lenders, which involves a soft credit check and lets you see your potential loan terms, including APR, without any effect on your credit score. Though not all banks or credit unions offer pre-qualification, most online lenders do.
3. Apply for a debt consolidation loan
Once you’ve decided on a lender, it’s time to apply for the loan.
Most loan applications are online and ask you to supply personal information like your Social Security number, address and other contact details. You also may be asked to provide proof of identity, employment and income.
Once you’ve submitted your application, the lender will make an approval decision. If you’re approved, you’ll sign the loan agreement and receive the funds. Funding time varies among lenders, but some lenders can fund the same day you’re approved.
4. Pay off creditors
Here’s the most important step: Use the loan proceeds to pay off your existing debts. Some lenders send the funds to your creditors for you, so you’ll need to provide account information about your existing debts — and check the accounts to make sure they’re paid off.
If a lender doesn’t offer direct payment, they’ll deposit the funds in an account of your choosing or mail a check, if you prefer. It’ll be up to you to make sure the right amount goes to each debt.
5. Begin making payments on your new loan
Once your existing debts are paid, you’re left with your new loan. Personal loan payments are monthly, though there’s usually no fee for paying off a loan early. Make a plan now to manage your personal loan payments.
As you make progress on paying off your loan, try to keep your credit card balances at or near zero until you’re debt-free. But avoid closing the accounts, which can lower your credit score.
Alternatives to debt consolidation loans
A debt consolidation loan isn’t your only option for paying off debt.
0% balance transfer credit card: For borrowers with good to excellent credit, transferring debts to a 0% balance transfer card may be a good option — as long as you can pay it off during the introductory period, which can range from 15 to 21 months.
Credit counseling: Nonprofit organizations offer credit counseling, which includes helping you create a debt management plan. Similar to other consolidation products, these plans roll your debts into one manageable payment at a reduced interest rate.
Debt payoff strategies: If you’re not sure how to tackle debt, you may not need to consolidate. The debt snowball and debt avalanche methods are two common strategies for paying off debt. The snowball method focuses on paying off your smallest debt first, building momentum as you go. The avalanche focuses on paying off the debt with the highest interest rate first, then applying the savings elsewhere. Both can boost your payoff speed.
Last updated on September 1, 2023
NerdWallet’s review process evaluates and rates personal loan products from more than 35 technology companies and financial institutions. We collect over 50 data points from each lender and cross-check company websites, earnings reports and other public documents to confirm product details. We may also go through a lender’s pre-qualification flow and follow up with company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer consumer-friendly features, including: soft credit checks to pre-qualify, competitive interest rates and no fees, transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to credit bureaus and financial education. Our ratings award fewer points to lenders with practices that may make a loan difficult to repay on time, such as charging high annual percentage rates (above 36%), underwriting that does not adequately assess consumers’ ability to repay and lack of credit-building help. We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau. We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences.
NerdWallet's Best Debt Consolidation Loans of October 2023
- SoFi Personal Loan: Best for No fees
- Upgrade: Best for Best overall
- LightStream: Best for Low rates
- Happy Money: Best for Paying off credit card debt
- Achieve Personal Loans: Best for Rate discounts
- Best Egg: Best for Secured loan option
- Universal Credit: Best for Bad credit
- LendingClub: Best for Joint loan option
- Discover® Personal Loans: Best for Fast funding
- PNC Bank Personal Loan: Best for Bank loans
Frequently asked questions
- Do debt consolidation loans affect your credit score?
Aside from a hard credit pull when you apply, just getting a debt consolidation loan won't hurt your credit. Your credit score could be negatively affected if you miss loan payments or pay late. Making on-time monthly payments and maintaining low balances on your credit cards will likely have a positive impact on your score.
- What is the interest rate on debt consolidation loans?
Debt consolidation loan interest rates vary by lender. The annual percentage rate, which is the interest rate plus any fees a lender charges, can range from 6% to 36%. Factors like your credit score, income and debt-to-income ratio help determine what interest rate you'll get on a loan.
- Is a debt consolidation loan a good idea?
A debt consolidation loan is a good idea if you can get a lower annual percentage rate than what you're paying now on other debts. The best debt consolidation loan interest rates are reserved for borrowers with good or excellent credit (690 or higher credit score). A debt consolidation calculator can help you understand whether a loan is right for you.