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Personal loans for debt consolidation

You can use an unsecured personal loan to consolidate debt or finance large purchases. Interest rates and terms can vary, based on your credit score and other factors. Compare loans from multiple lenders and learn more about personal loans.


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While we work on bringing Nerdy recommendations to your state, you can dig into our articles to learn more about personal loans. See:


DIVE EVEN DEEPER IN PERSONAL LOANS

Learn more about debt consolidation loans

With a debt consolidation loan, a lender issues a single personal loan that you use to pay off other debts, such as balances on high-interest credit cards. You’ll pay fixed, monthly installments to the lender for a set time period, typically two to five years. The interest rate depends on your credit profile, and it usually doesn’t change during the life of the loan.

Debt consolidation is only one of several strategies for paying off debt. Debt consolidation won’t work if you have too much debt or haven’t fixed underlying spending issues.

What rate should I expect?

These loans work best if your personal loan has a lower interest rate than your existing debts. Rates vary from lender to lender and depend heavily on your credit history and ability to repay, but here is what interest rates on personal loans look like, on average:

How's your credit?Score rangeEstimated APR
Excellent720 - 85013.9%
Good690 - 71918.0%
Fair630 - 68921.8%
Bad300 - 62927.2%; lowest scores unlikely to qualify

Source: NerdWallet lender survey

What are the requirements for debt consolidation?

Almost all lenders require you to be 18 years or older and a legal U.S. resident with a verifiable bank account and not in bankruptcy or foreclosure.

Borrowers with excellent credit and low debt-to-income ratios may qualify for interest rates at the low end of lenders’ ranges. Many lenders require borrowers to have a DTI of 40% or less.

Someone with bad or fair credit may be able to get an unsecured personal loan on the strength of a steady income and low debt levels, but should expect a higher interest rate. Personal loan annual percentage rates top out at 36%. Other options for borrowers with bad credit include secured or co-signed personal loans.

» MORE: Steps to consolidate your debt with a personal loan

Some lenders say they have no minimum credit score requirements, but that does not mean they don’t check your credit report. Knowing your credit profile before you apply can help set expectations. Several personal finance websites, including NerdWallet, offer free access to your credit score and credit report. Look for a site that offers educational tools such as a credit score simulator or guidance on how to build credit.

If you can’t qualify for a loan through a reputable lender, don’t head for a payday lender. Consider these options first.

Debt consolidation vs. balance transfer card

For borrowers with good credit, a balance transfer credit card is an alternative to a debt consolidation loan. Such cards have an introductory 0% interest rate, which increases after a promotional period, usually no more than 21 months.

The amount of credit card debt you can transfer is typically up to $15,000. Once the introductory period expires, the rate on a balance transfer card is usually higher than on a personal loan. In addition to paying off your balance before the rate increases, you’ll want to avoid making further charges.

A personal loan offers some advantages over balance transfer cards. Fixed payments ensure you’ll pay off debt on a set schedule. Borrowing limits are typically higher; some lenders offer loans of $50,000 or more.

A personal loan balance is reported as installment debt, which is treated differently in credit scoring formulas than revolving debt such as credit cards.

Which lender is right for me?

NerdWallet has reviewed more than 25 lenders to help you compare and choose one that’s right for you. Below is a list of some of our most popular reviews. See our picks for best debt consolidation loans.

Additional steps toward financial health

If you’re borrowing money to pay off debt, a personal loan works best if you have a plan to tackle your debts. Creating a budget and building an emergency fund are small steps that could set you up for a stronger financial future.

If you don’t have an immediate need for cash, work on building your credit. A higher credit score will qualify you for more loan opportunities, lower interest rates and better loan terms in the future.


Disclaimers

Annual Percentage Rates (APR), loan term and monthly payments are estimated based on analysis of information provided by you, data provided by lenders, and publicly available information. All loan information is presented without warranty, and the estimated APR and other terms are not binding in any way. Lenders provide loans with a range of APRs depending on borrowers' credit and other factors. Keep in mind that only borrowers with excellent credit will qualify for the lowest rate available. Your actual APR will depend on factors like credit score, requested loan amount, loan term, and credit history. All loans are subject to credit review and approval.