Debt consolidation rolls all of your loans into a single, more manageable plan — but it’s not a silver bullet.
Best Debt Consolidation Loans
There are a lot of debt consolidation loans available, and narrowing down which ones are best for you can be overwhelming. Here are the six best options:
Best for Low Interest Rates: Lightstream
If your credit is relatively good and you’re looking for the best possible interest rate, Lightstream is likely to be one of your top choices. They offer loans of up to $100,000 with funds available as early as the same day you’re approved.
Lightstream requires good credit and you’ll need to have several years of credit history to qualify. Personal loan rates start at 4.99%, but the best rates are reserved for borrowers with very good or excellent credit scores.
Lightstream will hand you a 0.5% discount if you choose to pay through an automatic deduction from your checking account. They will also beat any offer made by a competitor by 0.1% if the loans are equivalent.
Lightstream will not pay your creditors directly and they don’t offer financial education. On the positive side, there are no fees and no prepayment penalties, and Lightstream’s customer service was rated highest among all personal loan lenders in a 2020 survey.
Best for Small Loan Amounts: PenFed Credit Union
Debt consolidation doesn’t always involve tens of thousands of dollars. If your debt consolidation project involves a relatively small amount, PenFed Credit Union could be your ideal lender. PenFed makes personal loans from $500 to $50,000.
The lowest available APR is 5.99%. You’ll need a good credit score to qualify. As with most loans, better credit will get you a lower APR. Longer-term PenFed members may also get lower rates.
PenFed personal loan terms extend up to 60 months, and access to funds is immediate on approval. There are no origination fees or prepayment penalties. You can’t prequalify, but you can get an interest rate offer with a soft credit check.
PenFed offers a range of assistance programs, including forbearance, deferred payment, or loan modification to borrowers under stress from events beyond their control.
Loans are only available to members, but you can join the credit union by opening a savings account and depositing $5.
Best for Borrowers with Bad Credit: Upstart
Many people who need debt consolidation loans don’t have great credit. If you’re in that position, consider Upstart. You won’t get the interest rates that you would get with better credit, but you may still get a lower rate than you’re paying on credit card balances!
Upstart is not a lender. It’s a loan broker that will pass your application on to lenders in its network. This means you can get several loan offers from a single application. You should have a credit score of 600 or above, but Upstart will work with borrowers who have no credit history.
Upstart handles loans from $1000 to $50,000, with terms of 3 or 5 years and rates from 5.55% to 35.99%. The rate you’re offered will depend on your credit score and other factors. Upstart also uses factors like your education and job history in assessing your creditworthiness.
Upstart’s average three-year loan carries an interest of 25%, partly because they handle many loans for people with weak credit. There’s no prepayment penalty, but you may pay an origination fee, which will be deducted from the loan proceeds. Late fees may be assessed.
Upstart lends to borrowers with better credit, but if your credit is good you may prefer a lender that doesn’t charge origination fees.
Fast Loans for People with Low Incomes: RocketLoans
RocketLoans lends from $2000 to $40,000 at APRs from 5.97% to 29.99%. You have a choice of a 36 or 60-month term. Funding is fast, with funds up to $25,000 usually available on the day of approval and a relatively quick approval process. RocketLoans will make loans to borrowers who earn as little as $24,000 a year, as long as they have at least fair credit.
There’s no application fee or prepayment penalty, but there is an origination fee and late payment fees will be applied. You will need a credit score above 620, and if your score is near that level your APR will be at the high end of the range. There is a rate discount for automatic payments.
RocketLoans does not offer direct payment to your creditors. Payment dates are fixed; you cannot change or choose the day you’ll pay. Cosigners and joint loans are not permitted.
If you need the money quickly and your income is too low to let you qualify with other lenders, RocketLoans might be your best option.
Best for Bigger Loans: SoFi
SoFi has one of the best overall debt consolidation loan packages on the market, but you’ll need good credit to qualify.
SoFi will lend from $5000 to $100,000, making it a top choice if you’re looking for a larger loan. APRs range from 4.99% to 19.63%. Approval can take up to 3 days, so it’s not the best choice if you need to make a move right away.
SoFi offers a number of features that make their loans a debt consolidation standout. They will pay your creditors directly, taking that burden off you (and removing the temptation of cash in your hand). There are no fees: no origination fee, no late payment fee, no prepayment fee.
There are other useful features: SoFi accepts cosigners and gives a 0.25% interest rate discount for automatic payments. There’s a mobile app for loan management and an unemployment protection program that provides relief in the event of job loss.
SoFi tops off the package with a financial education package, making them one of the top options if you have good credit and you are borrowing over $5,000.
Best for No Origination Fee: Marcus by Goldman Sachs
If you’re looking for a true no-fee loan and you need less than $5,000, check out Marcus by Goldman Sachs. They lend from $3,500 to $40,000 with terms from three to six years, at rates from 6.99% to 19.99%.
This loan has absolutely no fees: no application fee, origination fee, late payment fee, or prepayment fee. Interest rates are competitive, making it a top low-cost option. You will need good credit to qualify.
Marcus offers an interest rate discount for direct payments and they will pay your creditors directly. Funds are typically available within one week. There’s a mobile loan management app and a financial education package.
Marcus offers an unusual range of payment term options, with nine choices between three and six years. Once you’ve made 12 consecutive payments you’ll have the option to defer one payment without interest.
Other Debt Consolidation Loan Options
The loans above are some of our top picks. You may have your own special criteria. If you’re looking for more options, try these!
BestEgg: an Option for Homeowners
BestEgg offers personal loans from $2,000 to $50,000. Terms are either three or five years and APRs range from 5.99% to 29.99%. You’ll need a 640 credit score to qualify and 700 or above to get the best APR. BestEgg will pay your creditors directly.
The notable feature here is that BestEgg offers a secured loan. If you own a home you can use it as collateral and get a better rate. If you don’t pay you could lose the home, so be sure you can.
BestEgg loans have two loan term options: three and five years. There’s no rate discount for autopay and you will pay an origination fee.
Lending Club: An Option for Fair Credit
LendingClub offers personal loans of $1000 to $40,000 at APRs ranging from 7.04% to 35.89%. Loan terms are a choice of three or five years.
LendingClub serves borrowers with credit scores as low as 600. You will pay an origination fee and there is a fee for late payments.
This is a fairly ordinary loan package and if you have good credit you might be better off with one of the no-fee loans discussed above. If your credit is less than stellar it’s worth getting a quote from LendingClub.
Avant: Debt Consolidation Loans for Credit Scores Down to 550
Avant makes loans of $2000 to $35,000 at APRs from 9.95% to 35.95%. Terms are two to five years. There is an origination fee and direct payment to creditors is not available. There’s no joint signing or cosigning option and there’s no discount for automatic payments. You will have the option to change your monthly payment date if it’s inconvenient.
The only real attraction here is that Avant is willing to work with credit scores as low as 550. You won’t get the best rates, but you will have a chance at approval. If you have better credit you can probably find a better deal.
Payoff: Specialized Loans for Consolidating Credit Card Debt
Payoff‘s debt consolidation exists for one reason: consolidating credit card debt. That’s limiting, but if that’s what you need to do, the loans are worth a look.
Payoff lends from $5000 to $40,000 with terms from two to five years and APRs from 5.99% to 24.99%. You will generally need good credit. There’s no discount for autopay. There’s no late fee or prepayment penalty, but you may be charged an origination fee. Payoff will pay your credit card issuers directly.
You can prequalify for a Payoff loan with a soft credit pull that will not affect your credit. If you are consolidating credit card debt and you prequalify with no origination fee and a competitive rate, this might be the loan for you.
Upgrade: Customizable Loans with Long Terms
Upgrade offers loans from $1000 to $50,000 at APRs of 5.94% to 35.47%. Loan terms are from two to seven years, a wider than usual range. You’ll get a 0.5% interest rate discount for automatic payments, and you may also get a rate discount if you opt for direct payment to creditors. You will pay an origination fee and late payment fees are assessed. You will need at least fair credit to qualify.
Upgrade allows joint loans, cosigners, and secured loans, providing an unusual range of options. There is a mobile loan management app and a comprehensive financial education package. You can customize your due date to match your pay schedule.
The option of terms up to seven years, the range of discounts available, and acceptance of joint loans, cosigners (not available in all states) and secured loans make this one of the most flexible debt consolidation loan packages you can find.
What is Debt Consolidation?
The Pros and Cons of Consolidating Your Debts
How Does a Debt Consolidation Loan Work?
When borrowers apply for a debt consolidation loan, lenders will look at credit score, credit history, income, debt-to-income ratio and other financial details to determine interest rates, payment terms, and lending amounts. Your credit score will matter. You’ll pay If you have poor credit, you’ll end up paying the highest interest rates. You’ll get a better deal if you have fair credit, and generally qualify for the best rates only if you have good credit.
These are the average FICO score ranges:
- Good credit: 670 to 739
- Fair credit: 580 to 669
- Poor credit: 300 to 579
Once approved, the lender will use the money to pay off the agreed-upon debts. You might be charged some origination fees. In some cases, lenders will deposit money directly into the borrower’s bank account and they will be responsible for paying off the debts themselves with the funds received.
If paying off the other loans is your responsibility, do it as soon as the money hits your bank account. It will not help your financial situation if the money goes to something else instead, and leaves you in a worse position.
When is the Best Time to Consolidate Your Debts?
Debt consolidation is a good option when borrowers find themselves with several high-interest loans to pay off — but only if their credit scores haven’t already been severely impacted by these loans. Loans aren’t typically approved for people with poor credit scores, and if they are, they usually come with very unfavorable terms and high interest rates. But borrowers with average credit will have a few solid options.
Debt consolidation loans might not be a good idea if you don’t have a long-term strategy. It won’t work if you pay off high-interest debts, but also continue to overspend and pile on even more debt. Paying off a credit card with a debt consolidation loan and then maxing it out again will only pull you further into debt.
Top Debt Consolidation Methods
The true cost of using a 401(k) loan is that borrowers not only risk their savings, they also miss out on market gains and compound interest they would have accrued from leaving their 401(k) plan alone. But this is a good way to get rid of high-interest debt.
Debt Consolidation Loan
Credit Card Balance Transfer Offer
A balance transfer credit card often comes with an introductory offer of an interest rate as low as 0% for a limited promotional period. Borrowers can take advantage of this by transferring all of their other credit card debts onto the new card. There may be some fees to pay to transfer your debts — usually around 3% to 5% — but like any other debt consolidation, there will now be one single card to pay off, with a much lower rate.
These introductory periods can last anywhere from 6 to18 months.
Be sure to check your mail for these kinds of offers. Credit card companies are required by law to approve the majority of offers they make through the mail. So if you get an offer with an enticing balance transfer offer, you’re likely to get approved.
Before you complete the application, check your credit score with the three major credit bureaus: Experian, TransUnion and Equifax. See if there are any errors on your credit report that you can remove to bump your score up a bit. There will be a credit inquiry, so you’ll need to have fair credit, solid payment history and a reasonable debt-to-income ratio to be approved for a new credit card.
These low annual percentage rate balance transfer offers are ideal for those who can pay off their debt within the introductory period. Because once that intro period is up, you’ll be paying the full APR of the credit card. So be sure that you can pay off the debt within the 0% APR balance transfer period. If you can’t, be sure to check what the APR will be when the introductory period expires, and make sure it’s lower than what you currently pay.
One other warning: Many credit card companies will rescind the introductory rate if you aren’t making on-time payments, so make sure to set up an autopay — even if just for the monthly minimum — to ensure that you’re paid up by the due date.
Tap Into Your Home’s Equity
Home Equity Line of Credit (HELOC)
Consider Refinancing your Mortgage
If you’ve owned your home long enough to have built up a significant amount of equity, this might be a good time to consider a mortgage refinance, and use some of that equity to pay your debts. Interest rates are low, so you’ll also likely have a lower monthly payment for your mortgage. You will have to pay a significant amount in fees to refinance, but they’ll be rolled into your new mortgage payment.
What About Debt Consolidation Programs/Debt Settlement Companies?
Do your homework before you commit.
These companies essentially take over the payments to your lenders, then require you to make payments to a separate bank account in your name. These companies typically rely on the ability to negotiate with your lenders to have your debts reduced, then take fees and a percentage of the money saved.
Consider a Debt Management Plan
Debt Management Plans are similar to debt consolidation companies, except they’re usually run by a nonprofit credit counseling agency. The credit counselor will help you better understand your financial situation and help you establish a payment plan. The cost usually ranges from $25 to $55 a month.
When is Debt Consolidation a Good Idea?
- You are overwhelmed by multiple monthly bills and can’t reliably pay them off.
- You have taken inventory of all your existing debt.
- Your total debt isn’t more than 40% of your gross income.
- Your credit score is high enough to secure a low to 0% interest debt consolidation loan.
- You have done all your research and understand what you’re getting into.
Debt consolidation is not a good idea if:
- Your credit rating is too low for you to secure a low-interest loan.
- You are consolidating unsecured debt with a secured loan.
- You are spending more than you earn or if you still haven’t solved your spending problems. Before taking any action, you need to reassess your financial situation to make sure you can handle the new loan.
- Your debt load is too small; in that case, applying for debt consolidation often doesn’t make sense.
Still not sure about debt consolidation? This video may give you a better idea.