Debt Consolidation Loans: Compare Top Lenders for August 2022

Written by Jackie Veling
July 11, 2022

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Here are 10 lenders for you

LightStream

on NerdWallet

LightStream

5.0

NerdWallet rating 
LightStream

5.0

NerdWallet rating 
Loan term 
2 to 7 years 

Loan amount 
$5,000 - $100,000 

APR 
4.99-19.99% 

on NerdWallet

Min. credit

660

Qualifications

  • Minimum credit score: 660.

  • Several years of credit history.

  • Multiple account types within your credit history, like credit cards, a car loan or other installment loan and a mortgage.

  • Strong payment history with few or no delinquencies.

  • Investments, retirement savings or other evidence of an ability to save money.

  • Enough income to pay existing debts and a new LightStream loan.

Pros

  • No fees.

  • Rate discount for autopay.

  • Long repayment terms on home improvement loans.

  • Rate Beat program and Experience Guarantee.

Cons

  • No option to pre-qualify on its website.

  • Requires several years of credit history.

  • No direct payment to creditors with debt consolidation loans.

Disclaimer

Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $25,000 loan at 4.98% APR with a term of 20 years would result in 240 monthly payments of $164.71. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2022 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.

LendingClub

on NerdWallet

LendingClub

5.0

NerdWallet rating 
LendingClub

5.0

NerdWallet rating 
Loan term 
3 to 5 years 

Loan amount 
$1,000 - $40,000 

APR 
6.34-35.89% 

on NerdWallet

Min. credit

600

Qualifications

  • Minimum credit score: 600.

  • Maximum DTI: 60%; 40% for joint applicants.

  • Minimum credit history: More than 18 months.

  • Minimum number of accounts on credit report: Two revolving accounts.

  • Monthly income after paying other debts and living expenses should be enough to cover the new personal loan payments.

Pros

  • Offers joint loan options.

  • Offers direct payment to creditors with debt consolidation loans.

  • Soft credit check with pre-qualification.

  • Option to change the payment date.

Cons

  • Borrowers can choose from two repayment term options only.

  • Charges an origination fee.

Disclaimer

A representative example of loan payment terms is as follows: you receive a loan of $13,411 for a term of 36 months, with an interest rate of 12.16% and a 5.30% origination fee of $711, for an APR of 15.99%. In this example, you will receive $12,700 and will make 36 monthly payments of $446.46. Loan amounts range from $1,000 to $40,000 and loan term lengths are 36 months or 60 months. Some amounts and term lengths may be unavailable in certain states. APR ranges from 7.04% to 35.89% and is determined at the time of application. Origination fee ranges from 3% to 6% of the loan amount. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of 7/1/21 and are subject to change without notice. Loans are made by LendingClub Bank, N.A., Member FDIC (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Loans are subject to credit approval and sufficient investor commitment before they can be funded or issued. Certain information that we subsequently obtain as part of the application process (including but not limited to information in your consumer report, your income, the loan amount that your request, the purpose of your loan, and qualifying debt) will be considered and could affect your ability to obtain a loan from us. Loan closing is contingent on accepting all required agreements and disclosures at Lendingclub.com. “LendingClub” is a trademark of LendingClub Bank.

Upgrade

on NerdWallet

Upgrade

5.0

NerdWallet rating 
Upgrade

5.0

NerdWallet rating 
Loan term 
2 to 7 years 

Loan amount 
$1,000 - $50,000 

APR 
10.96-14.98% 

on NerdWallet

Min. credit

560

Qualifications

  • Minimum credit score: 560.

  • Minimum number of accounts on credit history: 1 account.

  • Maximum debt-to-income ratio: 75%, including the loan you're applying for.

  • Minimum length of credit history: 2 years.

  • Minimum income requirement: None. Lender accepts income from alimony, retirement, child support, Social Security and other sources.

Pros

  • Secured and joint loans.

  • Multiple rate discounts.

  • Mobile app to manage loan payments.

  • Direct payment to creditors with debt consolidation loans.

  • Long repayment terms on home improvement loans.

Cons

  • Origination fee.

  • No option to choose your payment date.

Disclaimer

Personal loans made through Upgrade feature Annual Percentage Rates (APRs) of 6.95%-35.97%. All personal loans have a 1.85% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a $10,000 loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $341.48. Over the life of the loan, your payments would total $12,293.46. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early.

Upstart

on NerdWallet

Upstart

4.5

NerdWallet rating 
Upstart

4.5

NerdWallet rating 
Loan term 
3 to 5 years 

Loan amount 
$1,000 - $50,000 

APR 
5.92-35.99% 

on NerdWallet

Min. credit

None

Qualifications

  • Minimum credit score: None.

  • Minimum credit history: None, this lending platform accepts borrowers with credit history too limited to produce a FICO score.

  • Minimum gross income: $12,000.

  • Employment: Full-time job, full-time job offer starting in 6 months, a regular part-time job, or another source of regular income.

  • Must have U.S. residential street address where borrower resides (unless military personnel on active duty).

  • Must be at least 18 years old.

  • Valid email account required.

  • Personal bank account with U.S. routing number required.

Pros

  • Accepts borrowers new to credit.

  • Able to fund loans within one business day.

  • Offers direct payment to creditors with some debt consolidation loans.

  • Allows borrowers to choose and change payment date.

Cons

  • Borrowers can choose from only two repayment term options.

  • Charges origination fee.

  • No mobile app to manage the loan.

Disclaimer

Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($2,100), MA ($7,000), NM ($5,100), OH ($6,000).This offer is conditioned on final approval based on our consideration and verification of financial and non-financial information. Rate and loan amount are subject to change based upon information received in your full application. This offer may be accepted only by the person identified in this offer, who is old enough to legally enter into contract for the extension of credit, a US citizen or permanent resident, and a current resident of the US. Duplicate offers are void. Closing your loan is contingent on your meeting our eligibility requirements, our verification of your information, and your agreement to the terms and conditions on the www.upstart.com website.The full range of available rates varies by state. The average 5-year loan offered across all lenders using the Upstart platform will have an APR of 21.4% and 60 monthly payments of $24.62 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $14,775 including a $582 origination fee. APR is calculated based on 5-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved. If you accept your loan by 5pm EST (not including weekends or holidays), you will receive your funds the next business day. Loans used to fund education related expenses are subject to a 3 business day wait period between loan acceptance and funding in accordance with federal law.

Best Egg

on NerdWallet

Best Egg

4.5

NerdWallet rating 
Best Egg

4.5

NerdWallet rating 
Loan term 
3 to 5 years 

Loan amount 
$2,000 - $50,000 

APR 
7.99-35.99% 

on NerdWallet

Min. credit

600

Qualifications

  • Minimum credit score: 600; borrower average is 700.

  • Minimum credit history: 3 years and 3 accounts.

  • Minimum income requirement is $3,500; borrower average is $80,000. Borrower must have enough cash flow to cover current financial obligations.

  • Maximum debt-to-income ratio: 40% or 65% including a mortgage; borrower average is 40%.

  • Employment: Must provide proof of income; part-time employees are eligible.

  • Must provide valid U.S. address and Social Security number.

Pros

  • Offers wide range of loan amounts.

  • Provides secured loan option for homeowners.

  • Offers direct payment to creditors with debt consolidation loans.

Cons

  • Origination fee.

  • No rate discounts.

  • No option to choose initial payment date.

Disclaimer

Trustpilot TrustScore as of June 2020. Best Egg personal loans, including the Best Egg Secured Loan, are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender or Blue Ridge Bank, a Nationally Chartered Bank, Member FDIC, Equal Housing Lender. “Best Egg” is a trademark of Marlette Holdings, Inc., a Delaware corporation. All uses of “Best Egg” refer to “the Best Egg personal loan”, “the Best Egg Secured Loan”, and/or “Best Egg on behalf of Cross River Bank or Blue Ridge Bank, as originator of the Best Egg personal loan,” as applicable. The term, amount, and APR of any loan we offer to you will depend on your credit score, income, debt payment obligations, loan amount, credit history and other factors. Your loan agreement will contain specific terms and conditions. About half of our customers get their money the next day. After successful verification, your money can be deposited in your bank account within 1-3 business days. The timing of available funds upon loan approval may vary depending upon your bank’s policies. Loan amounts range from $2,000– $50,000. Residents of Massachusetts have a minimum loan amount of $6,500 ; New Mexico and Ohio, $5,000; and Georgia, $3,000. For a second Best Egg loan, your total existing Best Egg loan balances cannot exceed $50,000. Annual Percentage Rates (APRs) range from 7.99%–35.99%. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0.99%–8.99% of your loan amount, which will be deducted from any loan proceeds you receive. The origination fee on a loan term 4-years or longer will be at least 4.99%. Your loan term will impact your APR, which may be higher than our lowest advertised rate.  You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest APR. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents. Best Egg products are not available if you live in Iowa, Vermont, West Virginia, the District of Columbia, or U.S. Territories.

Universal Credit

on NerdWallet

Universal Credit

4.5

NerdWallet rating 
Universal Credit

4.5

NerdWallet rating 
Loan term 
3 to 5 years 

Loan amount 
$1,000 - $50,000 

APR 
11.69-35.93% 

on NerdWallet

Min. credit

560

Qualifications

  • Minimum credit score: 560.

  • Minimum number of accounts on credit history: 1 account.

  • Maximum debt-to-income ratio: 75%, including mortgage and the loan you’re applying for.

  • Minimum length of credit history: 2 years.

  • Minimum income requirement: None. Lender accepts income from alimony, retirement, child support, Social Security and other sources.

Pros

  • Offers direct payment to creditors with debt consolidation loans.

  • Fast funding.

  • Offers multiple rate discounts.

  • Offers free credit score access.

Cons

  • Charges origination fee.

  • Borrowers can choose from only two repayment term options.

Disclaimer

Personal loans made through Universal Credit feature Annual Percentage Rates (APRs) of 11.69%-35.93%. All personal loans have a 5.25% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 36 to 60 months. For example, if you receive a $10,000 loan with a 36-month term and a 28.47% APR (which includes a 22.99% yearly interest rate and a 7% one-time origination fee), you would receive $9,300 in your account and would have a required monthly payment of $387.05. Over the life of the loan, your payments would total $13,933.62. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early .

Happy Money (Formerly Payoff)

on NerdWallet

Happy Money (Formerly Payoff)

4.5

NerdWallet rating 
Happy Money (Formerly Payoff)

4.5

NerdWallet rating 
Loan term 
2 to 5 years 

Loan amount 
$5,000 - $40,000 

APR 
13.95% 

on NerdWallet

Min. credit

600

Qualifications

  • Minimum credit score: 600.

  • Minimum credit history: Three years.

  • At least two open accounts on credit report.

  • Maximum debt-to-income ratio: 50% (excluding mortgage).

  • Free cash flow: At least $1,000.

  • Zero credit delinquencies.

  • Must be able to provide income verification.

  • No bankruptcies filed within the past two years.

  • Must provide Social Security number.

Pros

  • Competitive rates among online lenders.

  • Offers direct payment to creditors.

  • Reports payments to all three major credit bureaus.

  • No prepayment or late fees.


Cons

  • Charges origination fee.

  • No rate discount for autopay.

  • Requires several years of credit history.


Disclaimer

This does not constitute an actual commitment to lend or an offer to extend credit. Upon submitting a loan application, you may be asked to provide additional documents to enable us to verify your income, assets, and financial condition. Your interest rate and terms for which you are approved will be shown to you as part of the online application process. Most applicants will receive a variety of loan offerings to choose from, with varying loan amounts and interest rates. Borrower subject to a loan origination fee, which is deducted from the loan proceeds. Refer to full borrower agreement for all terms, conditions and requirements.

LendingPoint

on NerdWallet

LendingPoint

4.0

NerdWallet rating 
LendingPoint

4.0

NerdWallet rating 
Loan term 
2 to 6 years 

Loan amount 
$2,000 - $36,500 

APR 
7.99-35.99% 

on NerdWallet

Min. credit

600

Qualifications

  • Minimum credit score of 600; average is 673.

  • Minimum income of $40,000; average customer earns $80,000.

  • Debt-to-income ratio of less than 50%, not including mortgage; average customer's ratio is 13%.

Pros

  • Soft credit check with pre-qualification.

  • Option to choose and change your payment date.

  • Can fund a loan the business day after approval.

Cons

  • No co-signed, joint or secured loan option.

  • Rates are high compared to other bad-credit lenders.

  • Reports payments to two of the three major credit bureaus.

  • Does not offer direct payment to creditors with debt consolidation loans.

Disclaimer

Applications submitted on this website may be funded by one of several lenders, including: FinWise Bank, a Utah-chartered bank, Member FDIC; Coastal Community Bank, Member FDIC; Midland States Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates ("APR") may vary based upon LendingPoint's proprietary scoring and underwriting system's review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 7% may apply depending upon your state of residence. Upon final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. Loans are offered from $2,000 to $36,500, at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 72 months. Minimum loan amounts apply in Georgia, $3,500; Colorado, $3,001; and Hawaii, $1,500. For a well-qualified customer, a $10,000 loan for a period of 48 months with an APR of 24.34% and origination fee of 7% will have a payment of $327.89 per month. (Actual terms and rate depend on credit history, income, and other factors.) The $15,575.04 total amount due under the loan terms provided as an example in this disclaimer includes the origination fee financed in addition to the loan amount. Customers may have the option to deduct the origination fee from the disbursed loan amount if desired. If the origination fee is added to the financed amount, interest is charged on the full principal amount. The total amount due is the total amount of the loan you will have paid after you have made all payments as scheduled.

Avant

on NerdWallet

Avant

3.5

NerdWallet rating 
Avant

3.5

NerdWallet rating 
Loan term 
2 to 5 years 

Loan amount 
$2,000 - $35,000 

APR 
9.95-35.95% 

on NerdWallet

Min. credit

550

Qualifications

  • Minimum credit score of 550.

Pros

  • Able to fund loans the next business day.

  • Option to change your payment date.

  • Soft credit check with pre-qualification.

Cons

  • Charges an origination fee.

  • Does not offer direct payment to creditors with debt consolidation loans.

  • No joint, co-signed or secured loan option.

Disclaimer

A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33. Minimum loan amounts may vary by state. If approved, the actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. An administration fee of up to 4.75% will be deducted from the loan proceeds. Avant branded credit products are issued by Webbank, member FDIC

Prosper Borrowers

on NerdWallet

Prosper Borrowers

3.5

NerdWallet rating 
Prosper Borrowers

3.5

NerdWallet rating 
Loan term 
3 to 5 years 

Loan amount 
$2,000 - $40,000 

APR 
13.25% 

on NerdWallet

Min. credit

600

Qualifications

  • Minimum credit score: 600; borrower average is 722.

  • Minimum credit history: 2 years.

  • Minimum income: No minimum income requirement; borrower average is $106,000.

  • Maximum debt-to-income ratio: 50% (excluding mortgage); borrower average is 17.67%, including monthly housing payment.

  • No bankruptcies filed within the past year.

  • At least three open accounts on credit report.

  • Must be at least 18 years old.

  • Must provide Social Security number and a U.S. bank account.

Pros

  • Option to change your payment date.

  • Offers joint loan.

  • Offers wide range of loan amounts. 


Cons

  • No rate discount for autopay.

  • Funding time can be longer than many lenders.

  • Charges origination and late fees.

  • Borrowers can choose from only two repayment term options.

Disclaimer

For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.90. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 2.41%-5%. Personal loan APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for the most creditworthy borrowers. Eligibility for personal loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank, Member FDIC.


NerdWallet’s guide to choosing the best debt consolidation loan

A debt consolidation loan is a personal loan you use to pay off multiple debts, such as balances on high-interest credit cards, medical bills or other unsecured debt.

This strategy can lower the total interest you owe on the debt and help you pay it off faster. It can also make debt easier to manage, since you only need to keep track of one payment.

Our guide to debt consolidation loans can help you understand how they work, when they’re a good idea and how to get one.

Why trust NerdWallet? NerdWallet has rated and reviewed personal loans from more than 35 financial institutions. We collect over 45 data points from each lender, interview company representatives and compare the lenders with each other. We do not receive compensation for our ratings. Read more about our personal loan star ratings methodology and our editorial guidelines.

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.

Are debt consolidation loans a good idea?

If you can qualify for a low enough interest rate, and you can afford the monthly payments, debt consolidation loans can be a smart strategy for getting out of debt.

Here are the advantages of debt consolidation loans.

  • You pay less in interest. A debt consolidation loan should have a lower interest rate than the combined rate on your existing debts. This means you’ll owe less interest on the amount you’re borrowing.

  • You can get out of debt faster. Depending on the amount you owe and the repayment term you choose, you may get out of debt faster with a consolidation loan.

  • You can budget for fixed payments. Unlike other debts such as credit cards, debt consolidation loans have fixed rates and monthly payments that won’t change over the course of the loan, making budgeting easier.

  • You’ll have a clear finish line. By consolidating multiple debts under one loan, you’ll have an exact date when you’ll be debt-free, which can be motivating and help you stick to the payments.

Debt consolidation is one of several strategies for paying off debt. It won’t work if you have too much debt — think 50% or more of your gross income — or underlying spending issues.

Rates on debt consolidation loans

Debt consolidation loans work best if the loan has a lower interest rate than the combined interest on your existing debts. Rates vary by lender and depend heavily on your credit history and ability to repay.

Nerdy tip: If you don’t know your credit score, you can check it for free on NerdWallet. Though borrowers with good and excellent credit (690 FICO or higher) are more likely to qualify for the lowest rates, you can still get a debt consolidation loan with bad credit.

Here is what interest rates on personal loans look like, on average.

How's your credit?

Score range

Estimated APR

Excellent

720-850.

10.6%.

Good

690-719.

15.5%.

Fair

630-689.

19.6%.

Bad

300-629.

25.6%.

Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified in NerdWallet’s lender marketplace from Jan. 1, 2022, to July 31, 2022. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 FICO — are unlikely to qualify. Information in this table applies only to lenders with APRs below 36%.

Comparing debt consolidation loans

Like any major financial decision, it’s important to compare your options to make the best choice possible. Take into account these factors.

APR: The annual percentage rate, or APR, summarizes the total cost of the loan and includes interest and any fees. Comparing APR between loans is one of the best ways to gauge costs. The lower the APR, the less expensive the loan.

Repayment terms: Some lenders offer multiple repayment terms to choose from, while others only offer two choices (for example, a three- or five-year term). Having more repayment term options means you can better customize the loan. For example, a longer term means a lower monthly payment, while a shorter term carries less interest.

Special perks: Some lenders focus specifically on debt consolidation and offer special features, like sending the loan funds directly to your creditors, offering a rate discount for consolidating or monitoring your credit score while you pay off debt.

NerdWallet has reviewed more than 35 lenders to help you choose one that’s right for you. Below is a list of lenders that we believe offer the best debt consolidation loans.

Lender

Credit bracket

Best for

APR range

Discover
NerdWallet rating 

on Discover's website

Excellent.

Flexible payment options.

5.99% - 24.99%.

SoFi
NerdWallet rating 

on SoFi's website

Excellent.

Free financial advising.

7.99% - 22.73%.

Marcus by Goldman Sachs
NerdWallet rating 

on Goldman Sachs' website

Good.

No fees.

6.99% - 24.99%.

Lightstream
NerdWallet rating 

on LightStream's website

Good.

Low rates.

4.99% - 19.99%.

Happy Money
NerdWallet rating 

on Happy Money (Formerly Payoff)'s website

Fair.

Paying off credit card debt.

5.99% - 24.99%.

Upgrade
NerdWallet rating 

on Upgrade's website

Bad.

Direct payment to creditors with discount.

6.95% - 35.97%.

Upstart
NerdWallet rating 

on Upstart's website

Bad.

Borrowers with no credit history.

5.42% - 35.99%.

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, since this is the loan amount you need to apply for, and your combined interest rate, since 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 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 between 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.

How will debt consolidation affect my credit score?

When you apply for the loan, lenders conduct a hard credit inquiry, which temporarily lowers your score by a few points.

Like other forms of credit, making your loan’s monthly payment on time and in full helps build credit, while missing payments could damage it.

If you took out the loan to pay off credit card debt, but end up carrying a balance on your cards while the loan is still active, your credit score could also suffer since your overall debt has increased.

But as long as you are able to pay off your loan and stay out of debt, consolidation should have a positive overall effect on your credit.

Alternatives to debt consolidation loans

If you’re not approved for a personal loan, there are other options for paying off debt.

Balance transfer card: Borrowers with good or excellent credit can transfer credit card debt to a balance transfer credit card, then pay it off during the promotional 0% APR period, which can last up to 21 months. Most cards charge balance transfer fees, which typically range from 3% to 5% of the amount being transferred.

Credit counseling: If you don’t have good credit, consider nonprofit credit counseling. These agencies can help set up a debt management plan, which consolidates your credit card debts into one monthly payment at a lower interest rate.

Simple debt payoff strategies: Not all debt payoff requires consolidation. You can also use simpler payoff strategies, like the snowball or avalanche methods, to figure out which debt to tackle first, then second and so on until all debts are paid.

Less popular — and riskier — options for dealing with debt include a home equity loan, a 401K loan or, in cases of extreme debt, filing for bankruptcy.

FAQs about debt consolidation loans

Does debt consolidation save money?

Consolidating debt can save money on interest. Plug your existing balances and interest rates into a debt consolidation calculator to see how much you can save with a debt consolidation loan.

What are the risks of a debt consolidation loan?

The risks of debt consolidation include getting a loan that’s more expensive than your current debt or not addressing the root cause of your spending, so you end up in even more debt than before.

How do you qualify for a debt consolidation loan?

Lenders look at credit score, income and debt to qualify you for a debt consolidation loan. A 600 FICO score and a debt-to-income ratio of 40% or lower are typical minimum requirements. Some lenders specifically offer debt consolidation loans for bad credit.

Will a debt consolidation loan hurt my credit score?

Applying for a debt consolidation loan requires a hard inquiry, which can temporarily knock a few points off your credit score. But if you use the loan to pay off debt, then pay off the loan successfully, the overall effect on your credit should be positive.

NerdWallet’s personal loan rating methodology

NerdWallet writers and editors conduct a full fact check of our personal loan ratings and reviews 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. 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.

This methodology applies only to lenders that cap interest rates at 36%, the maximum rate most financial experts and consumer advocates agree is the acceptable limit for a loan to be affordable.

Frequently asked questions


About the author: Jackie covers personal loans for NerdWallet. Prior to that, she ran a freelance writing and editing business. She graduated from Indiana University with a degree in journalism. Email: [email protected]


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.