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Young Americans have a lot of debt—an average of $5,472 in credit card debt, $27,975 in student loan debt, and $201,811 in mortgage debt, according to a recent LendEDU report.
Debt can be a major challenge, especially if you owe multiple creditors. One step toward becoming debt-free may be consolidating your debt—using a new loan to pay off multiple debts, so you’re left with a single payment each month instead of many—especially if you can qualify for a lower rate.
This guide to debt consolidation loans will help you decide whether consolidation can help you get out of debt, and it will also help you compare the best debt consolidation loans offered by our partners.
In this guide:
- Best debt consolidation loans
- How to find the best rates
- What to consider before applying
- Alternatives to consider
Best debt consolidation loans
LendEDU ranked and rated the best debt consolidation loans from our partners. Borrowers can compare loan offers to find the loan that’s right for them.
5.95% – 19.99%*
$5,000 – $100,000
LightStream, our best overall personal lender, offers a loan product specifically for credit card debt and debt consolidation. Their products boast low rates and no fees, and LightStream is willing to beat competitors’ rates by 0.10 percentage points.** They’re a great choice for customers with good to fair credit scores.
- Credit score category: Excellent, good
- Soft credit pull to check rates: Not available
- Deposit time: As soon as the same day
- Origination fee: 0%
- Late fee: None
- Discounts: 0.50% interest rate reduction for enrolling in autopay
- Repayment terms: 24 – 84 months***
7.99% – 35.97%
$1,000 – $35,000
Upgrade offers a personal loan product that can be used for debt consolidation, and the company’s low minimum loan amount makes it great for consolidating smaller amounts of debt. Borrowers with lower credit scores are eligible, and you can check your rate without hurting your credit score.
- Credit score category: Fair, bad
- Soft credit pull to check rates: Yes
- Deposit time: As soon as the next day
- Origination fee: 2.9% – 8%
- Late fee: $10
- Repayment terms: 36 or 60 months
6.27% – 35.99%1
$5,000 – $30,0002
Upstart is an online platform that utilizes machine learning to streamline the loan process. If you need cash fast, Upstart is a great option because you may be able to access your money in as fast as one business day.3
- Credit score category: Fair, bad
- Soft credit pull to check rates: Yes
- Deposit time: As fast as one business day3
- Origination fee: 0% – 10%
- Late fee: $5 or 15% of payment (whichever is higher)
- Repayment terms: 36 months or 60 months1
How to find the best debt consolidation loan rates
Rates for debt consolidation loans vary based on several financial factors including:
- Your credit score.
- The types of outstanding debt you carry.
- Your debt-to-income ratio.
Some lenders are more willing to make loans to people with poor credit, while others have stricter standards. Get personalized quotes from at least three of the best personal loan lenders before applying to find the best rate and terms for your situation.
How do debt consolidation loans work?
When you want to consolidate debt, the first step is to find and apply for a new loan. Personal loans make excellent debt consolidation loans since they can be used for pretty much anything.
Ideally, this loan will be enough to pay off your existing debts. Depending on your needs, you’ll also want the loan to have a lower interest rate or lower monthly payment (or both) to reduce your cost and simplify repayment.
Once you’re approved for a debt consolidation loan, the money goes to repay your existing debt. In some cases, the lender will send the money directly to your creditors. In others, you’ll receive the funds and pay off your debts yourself.
Once your other debts are repaid, you’ll just be responsible for the monthly loan payment on the new consolidation loan.
>> Read More: Does debt consolidation hurt your credit?
What types of debts can I combine with personal loan consolidation?
Because many personal loan lenders simply send you borrowed funds, you should be able to use your consolidation loan to repay almost any debts. This can include credit card balances, medical bills, home repair debt, and even other personal loans.
Most people use them to pay off high-interest debt, like credit card debt.
Some personal loan lenders restrict the loan purpose from paying off certain types of debt. Mortgage refinancing and student loan consolidation, for example, require specific types of refinancing loans.
What to consider before applying for a debt consolidation loan
Before you apply for a debt consolidation loan, consider the interest rate, the loan term, and any lender fees.
The interest rate
It’s generally a good idea to consolidate debt if you can qualify for a new loan at the same or lower interest rate than existing debts. A higher rate would just make your debt cost more.
You’re best off applying for a debt consolidation loan after you’ve taken steps to improve your credit score from where it was when you incurred the debt. That’ll improve your chances of qualifying for a lower rate.
You could also consider asking a creditworthy cosigner to help you qualify for a loan at a better rate than you could secure on your own.
The loan term
If you’re having trouble making monthly payments on existing debt, a longer loan term could help simplify your debt management and help you keep up with repayment.
Think carefully about the repayment timeline, as this affects both your monthly payment and the total loan cost. Look for a long enough repayment timeline that your monthly payment is affordable, but don’t extend the loan term so much you have to pay a fortune in interest.
Some lenders charge origination fees, processing fees, and late fees, which can increase the cost of borrowing your debt consolidation loan. Your existing creditors may also charge prepayment penalties for the debt payoff.
Also look for discounts, such as autopay interest-rate reductions, which could reduce your cost of borrowing.
Alternatives to traditional debt consolidation loans
Unsecured personal loans are typically easy to apply and qualify for, even with some rough spots on your credit report, and they provide funding quickly. This makes them ideal for debt consolidation.
However, you may wish to consider these other financing options before committing to a personal loan, or if you have trouble qualifying for one.
Secured debt consolidation loans
Consolidation loans secured by your home equity often come with lower interest rates because your home acts as collateral to reduce a lender’s risk.
However, you need to build equity to qualify, your home is on the line, and the application process is typically longer and more costly than for unsecured loans.
Balance transfer credit cards
Many people trying to consolidate debt are hoping to move away from owing money to credit card companies. This is typically a good idea, which is why none of the best debt consolidation loans we rated above involve credit cards.
However, there are situations where signing up for a new card can help—provided you’re committed to paying down your debt. This can make sense if you’re able to qualify for a balance transfer credit card with a 0% APR on transferred debt for a period and no balance transfer fee.
If you can pay off the credit card debt before the 0% APR period ends, this can be a great way to consolidate debt from multiple credit cards and save money on interest. If you can’t pay it off in time, however, the interest rate will likely jump and increase the cost of your debt.
*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.
**LightStream will offer a rate .10 percentage points lower than the rate offered on any competing lender’s unsecured loan provided that you were approved for that lower rate (with the same loan terms offered by LightStream) no later than 2 p.m. Eastern time two business days prior to loan funding. The Rate Beat Program excludes secured or collateralized loan offers from any lender, and the competitive offer must be available to any customer with a similar credit profile. Terms are subject to change at any time.
If you believe you have been approved by another lender for a lower qualifying rate, contact LightStream customer service. We will work with you to determine your Rate Beat eligibility and obtain the necessary documentation.
***Payment example: Monthly payments for a $10,000 loan at 5.95% APR with a term of three years would result in 36 monthly payments of $303.99.
1 The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-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.
2 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. Loans are not available in West Virginia or Iowa. The minimum loan amount in MA is $7,000. The minimum loan amount in Ohio is $6,000. The minimum loan amount in NM is $5100. The minimum loan amount in GA is $3,100.
3 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.
Author: Christy Rakoczy