BEST OF

Best Debt Consolidation Loans of June 2021

Debt consolidation loans help borrowers combine multiple high-interest debts into a single payment. Compare our picks for the best loan options for all credit scores.

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If you’re like many Americans with high credit card balances, you may be looking for ways to get your debt under control. Debt consolidation loans are one option that can reduce your debt and help you pay it off sooner.

Debt consolidation is the process of combining multiple debts — such as credit cards, medical bills and payday loans — into one debt with a fixed monthly payment. Consolidating debt with a personal loan works best if the rate on the loan is lower than the combined interest rate on your existing debt.

When comparing debt consolidation loans, look for low rates, flexible terms and consumer-friendly features such as direct payment to creditors.

Best debt consolidation loans: Factors to compare

Annual percentage rates: The loan's APR represents its true annual cost, as it includes all fees and interest charges. Rates vary based on your credit scores, income and debt-to-income ratio. Use APRs to compare 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. The one-time fee typically ranges from 1% to 10% of the loan amount and is either deducted from your loan proceeds or added to the loan balance. Avoid loans that include this fee to keep costs down, unless the APR is lower than other no-fee loans.

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.

Get the most with 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 excellent credit (720 to 850 FICO) have more loan options and may qualify for lower rates. In either case, it can pay to build your credit before seeking a consolidation loan.

Add a co-signer: While co-signing carries some risks, it can help you qualify for a debt consolidation loan that you wouldn’t be able to on your own due to poor credit or low income.

Estimate your savings: Use a debt consolidation calculator to estimate your interest savings and new monthly payment, and to compare various loan options.

Shop around: Compare rates and terms at multiple lenders before applying for a debt consolidation loan. Most online lenders let you pre-qualify with a soft credit inquiry, which has no impact on your credit scores.

Plan ahead: Before your loan is funded, create a budget that allocates a percentage of your income toward debt repayment and track your repayment progress with a budgeting and saving app.

Curb spending: Avoid big expenditures on your credit cards as you pay off debt, but don’t close any of the cards. Canceling credit accounts can hurt your credit score.

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 bump your credit.

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.

How to pre-qualify for a debt consolidation loan

Pre-qualifying for an online loan can get you access to potential loan terms, including the loan’s interest rate. You can pre-qualify with multiple lenders on NerdWallet to compare offers and find the lowest rate.

Last updated on June 1, 2021

Methodology

NerdWallet's ratings for personal loans award points to lenders that offer consumer-friendly features, including soft credit checks, no fees, transparency of loan rates and terms, flexible payment options, accessible customer service, reporting of payments to credit bureaus and financial education. We also consider the number of complaints filed with agencies like the Consumer Financial Protection Bureau. This methodology applies only to lenders that cap interest rates at 36%, the maximum rate financial experts and consumer advocates agree is the acceptable limit for a loan to be affordable. NerdWallet does not receive compensation of any sort for our reviews.

To recap our selections...

NerdWallet's Best Debt Consolidation Loans of June 2021

Frequently asked questions