How to Get a Debt Consolidation Loan in 5 Steps
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1. Know how much you want to borrow
2. Check your credit score
- Credit history: Lenders like to see that you’ve used credit responsibly in the past, meaning you have a history of on-time payments, ideally spanning a couple years across two or three accounts.
- Income: Lenders prefer steady cash flow and will ask to see proof of income as part of your application. The higher your income, the more likely you may be approved, though not all lenders have a minimum income requirement.
- Debt-to-income ratio: Lenders also look at how much of your monthly income goes toward existing debts — this figure is called your debt-to-income ratio. Most lenders prefer a DTI of 40% or less.
- Loan details: The smaller the loan amount and the shorter the repayment term, the more likely you may be approved. That’s because small, short-term loans represent less risk for the lender. Resist the temptation to borrow more money than you need and choose the shortest repayment term in which you can still afford the monthly payment.
3. Pre-qualify with a few lenders
- Annual percentage rate: The annual percentage rate, or APR for short, represents the true cost of the loan and includes interest and any fees. The lower the APR, the more affordable the loan. For consolidation to make the most sense, you want a loan that has a lower APR than the average interest rate across your existing debts.
- Loans amounts and terms: Make sure any lender you’re considering offers flexibility in its loan amounts and terms. For example, some lenders only offer two repayment terms to choose from, while others will offer terms ranging from one to seven years. A wide range of amounts and terms helps you better customize the loan to fit your needs.
- Special perks: Some lenders offer unique features like direct payment to creditors. This means that after the loan closes, the lender will send your loan proceeds to your creditors at no extra cost, saving you that step. Other examples include a rate discount for setting up automatic payments, credit score monitoring or free financial education.
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4. Submit your loan application
Ask NerdWallet: Why can’t I get a debt consolidation loan?
5. Get funded and pay off debts
Article sources
- 1. National Credit Union Administration. Payday Alternative Loans Final Rule. Accessed Apr 17, 2025.
- 2. National Bureau of Economic Research. Prodigals and Projecture: An Economic History of Usury Laws in the United States from Colonial Times to 1900. Accessed May 2, 2025.
- 3. Federal Register. Federal Interest Rate Authority: A Rule by the Federal Deposit Insurance Corporation on 07/22/2020. Accessed May 2, 2025.
- 4. Federal Reserve Bank of St. Louis. Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan. Accessed May 23, 2025.
- 5. Consumer Financial Protection Bureau. What Is a Debt Relief Program and How Do I Know if I Should Use One?. Accessed Jan 16, 2025.
- 6. Consumer Financial Protection Bureau. Truth in Lending Act (TILA) examination procedures. Accessed May 2, 2025.
- 7. Experian and Oliver Wyman. Financial Inclusion and Access to Credit. Accessed Jan 23, 2025.
- 8. Internal Revenue Service. Canceled debt – Is it taxable or not?. Accessed Apr 1, 2025.
- 9. Consumer Financial Protection Bureau. What is a payday loan?. Accessed Apr 17, 2025.
- 10. Center for Responsible Lending. Payday and Other Small Dollar Loans. Accessed May 2, 2025.
- 11. National Credit Union Administration. Credit Union and Bank Rates 2024 Q4. Accessed May 23, 2025.
- 12. Federal Reserve. Military Lending Act. Accessed May 2, 2025.
- 13. Consumer Financial Protection Bureau. Consumer Use of Buy Now, Pay Later and Other Unsecured Debt. Accessed Jan 24, 2025.
- 14. Center for Responsible Lending. Unsafe Harbor: The Persistent Harms of High-Cost Installment Loans. Accessed May 2, 2025.
- 9. Consumer Financial Protection Bureau. What is a payday loan?. Accessed May 2, 2025.
- 16. Consumer Financial Protection Bureau. What are the costs and fees for a payday loan?. Accessed Jun 6, 2025.
- 17. Internal Revenue Service. Home energy tax credits. Accessed Mar 6, 2024.
- 18. Center for Responsible Lending. Unsafe Harbor: The Persistent Harms of High-Cost Lending. Accessed Jun 6, 2025.
- 19. Solar Energy Industries Association. Solar Power Purchase Agreements. Accessed Mar 7, 2024.
- 20. SolarReviews.com. Homes with Solar Sell for 6.8% More [2024 Zillow Data Study]. Accessed Dec 10, 2024.
- 21. Internal Revenue Service. Retirement Topics - Plan Loans. Accessed Apr 8, 2025.
- 9. Consumer Financial Protection Bureau. What is a payday loan?. Accessed Apr 4, 2025.
- 23. The Pew Charitable Trusts. Payday Loans Cost 4 Times More in States With Few Consumer Protections. Accessed Apr 4, 2025.
- 12. Federal Reserve. Military Lending Act. Accessed Apr 4, 2025.
- 25. Internal Revenue Service. Retirement topics: Exceptions to tax on early distributions. Accessed Apr 8, 2025.
- 26. Administrative Office of the U.S. Courts. Bankruptcy Basics. Accessed Apr 8, 2025.
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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.
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