If the number of bills you're juggling keeps you awake at night or you find yourself skipping one bill so you can pay another, a debt consolidation loan can help you rest easier. Look for a loan with a lower interest rate than the rate you're currently paying on other debts. Once you have the funds, start paying off those high-interest debts. By paying a single payment each month, you methodically climb out of debt. A debt consolidation loan can be one of the smartest financial moves you make.
Here's why: It lets you take out a personal loan to pay off existing debt, including high-interest credit card debt. You can also use it to pay off secured debt like a boat, ATV, or auto loan. Whether you have bad credit, average credit, or excellent credit, there's a loan for you. Below, we'll help you compare online lenders who offer the best personal loans for debt consolidation.
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As of Aug. 01, 2022
| Lending Partner | Min. Credit Score | Loan Amounts | APR Range | Next Steps |
|---|---|---|---|---|
SoFi
Rating image, 5.0 out of 5 stars.
|
Min. Credit Score: 680 | Loan Amounts: $5,000 - $100,000 | APR Range: 7.99% - 22.73% (with all discounts) | |
Upstart
Rating image, 4.0 out of 5 stars.
|
Min. Credit Score: None | Loan Amounts: $1,000 - $50,000 | APR Range: 5.42% - 35.99% | |
LendingPoint
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 585 | Loan Amounts: $2,000- $36,500 | APR Range: 9.99% - 35.99% | |
FreedomPlus
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 640 | Loan Amounts: $7,500 - $50,000 | APR Range: 7.99% - 29.99% | |
Discover Personal Loan
Rating image, 5.0 out of 5 stars.
|
Min. Credit Score: 660 | Loan Amounts: $2,500 - $35,000 | APR Range: 5.99%-24.99% | |
Upgrade
Rating image, 4.5 out of 5 stars.
|
Min. Credit Score: 620 | Loan Amounts: $1,000 - $50,000 | APR Range: 5.94% - 35.97% | |
Best Egg
Rating image, 4.0 out of 5 stars.
|
Min. Credit Score: 640 | Loan Amounts: $2,000 - $50,000 | APR Range: 5.99% - 35.99% |
Disclaimers
*Upstart Loan Disclaimer
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.
*SoFi Personal Loan Disclaimer
Fixed rates from 7.99% APR to 22.73% APR APR reflect the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi rate ranges are current as of 8/1/22 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account
Best for: Low interest rates
SoFi
Rating image, 5.0 out of 5 stars.
5.0/5
Minimum Credit Score
680
Loan Amounts
$5,000 - $100,000
APR Range
7.99% - 22.73% (with all discounts)
Term Length
24 - 84 months
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We chose SoFi for debt consolidation loans because of its generally low interest rates. Even on the high end, they can beat the rates many people pay on their credit card debt. That means there's a good chance you can save money consolidating your debt with a SoFi loan.
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- Competitive interest rates
- No fees
- Paused payments for unemployment
- High minimum loan amount
Best for: Flexible credit requirements
Upstart
Rating image, 4.0 out of 5 stars.
4.0/5
Minimum Credit Score
None
Loan Amounts
$1,000 - $50,000
APR Range
5.42% - 35.99%
Term Length
36 or 60 months
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We selected Upstart for best debt consolidation loans because credit requirements are flexible here, allowing more applicants to potentially lower the cost of their debt. The minimum loan amount is $1,000, so you don't have to borrow more than you need.
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- Accepts borrowers with low credit scores
- Wide range of loan amounts
- No prepayment penalty
- Payment grace period
- High upper-range interest rate
- High origination fees
- No cosigner allowed
Best for: Low minimum credit scores
LendingPoint
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
585
Loan Amounts
$2,000- $36,500
APR Range
9.99% - 35.99%
Term Length
24 - 60 months
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We chose LendingPoint for best debt consolidation loans because applicants across the credit score spectrum have the opportunity to consolidate their debt here. You need a 585 credit score and responsible recent credit behavior to apply. You also need to have a steady job.
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- No prepayment penalty
- Funds can arrive in as fast as one business day
- Instant approval notification
- Origination fees
- Short-term loan terms
Best for: Using a cosigner
FreedomPlus
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
640
Loan Amounts
$7,500 - $50,000
APR Range
7.99% - 29.99%
Term Length
24 - 60 months
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We selected FreedomPlus for best debt consolidation loans because it offers a special interest rate discount to borrowers who use the money to pay down other debt. A lower rate can help you get out of debt faster. If you need to, you can apply with a cosigner
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- Cosigners accepted
- Special discounts for borrowers who want to pay down existing debt
- No prepayment penalty
- Difficult to qualify for lowest interest rate
- Costly origination fees
Best for: Debt consolidation support
Discover Personal Loan
Rating image, 5.0 out of 5 stars.
5.0/5
Minimum Credit Score
660
Loan Amounts
$2,500 - $35,000
APR Range
5.99%-24.99%
Term Length
36 - 84 months
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Discover makes our list of best debt consolidation loan lenders because it will pay your creditors directly as soon as your loan is approved. You don't have to receive the money and make the payment yourself. Paying off your debt even one day later could cost you more interest.
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- Competitive APRs
- No origination or prepayment fees
- Debt consolidation support
- Long repayment term
No cosigners accepted
Best for: Using collateral to lower interest rates
Upgrade
Rating image, 4.5 out of 5 stars.
4.5/5
Minimum Credit Score
620
Loan Amounts
$1,000 - $50,000
APR Range
5.94% - 35.97%
Term Length
24 - 84 months
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We chose Upgrade for best debt consolidation loans because there are several ways to lower the cost of your debt. Rate discounts are available if you pay off other debt, sign up for autopay, and for borrowers who are approved to use their vehicle as collateral.
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- Low minimum loan amount
- Get your funds within one business day
- Auto secured loans available
- Not available to residents of all states
- APRs can be high
- Origination fees
Best for: Low minimum loan amounts
Best Egg
Rating image, 4.0 out of 5 stars.
4.0/5
Minimum Credit Score
640
Loan Amounts
$2,000 - $50,000
APR Range
5.99% - 35.99%
Term Length
36 - 60 months
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We selected Best Egg for debt consolidation loans because some borrowers will qualify for a very competitive interest rate that can help them get out of debt sooner. We like that Best Egg includes free access to your credit score and information about how you can improve it.
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- Low minimum loan amount (in most states)
- Easy application process
- Funds disbursed in as little as one day
- Origination fees
- No joint applications accepted
- The best loans reserved for those with high incomes and credit scores
What is a debt consolidation loan?
A debt consolidation loan is a loan used to pay off other debt. Usually, a debt consolidation loan has a lower interest rate than other debt (like credit card debt). You can also use it to pay off multiple debts, which may include any of the following:
- Credit card balance
- Payday loan
- Any other unsecured personal loan
With a debt consolidation loan, you only have one debt payment to remember instead of several.
COVID-19 debt consolidation loans
Many people are choosing to consolidate debt as the world attempts to get the coronavirus pandemic under control. Here's why:
- Lower your monthly payment: Many debt consolidation loans have a lower monthly payment than credit cards.
- Save money on interest: You can save yourself hundreds of dollars in interest fees (depending on the size of your debt) by getting a debt consolidation loan. This is because loans generally have lower interest rates than credit cards.
- Switch loan types: Perhaps you currently have a variable-rate loan, and though the current interest rates are low, you're concerned about how you'll make the monthly payment when the interest rates rise. Switching to a fixed-rate loan can ease your mind. Best yet, today's low rates allow you to lock into a low monthly payment.
- Peace of mind: You won't have to wonder when your debt will be paid off -- you'll know. If you get a five-year loan, your debt will be paid off in five years.
Whether you're trying to save money during the pandemic, or you'd simply like a structured timeline for paying off debt, a COVID-19 debt consolidation loan may be the right choice for you.
Get started: Apply for one (or several) of our experts' recommended debt consolidation loans listed above.
What are the benefits of using a personal loan for debt consolidation?
A debt consolidation loan can save you money and time. Here are the three main benefits to a debt consolidation loan:
- Save money. Most debt consolidation loans have a lower interest rate than credit cards. Many people can save hundreds or thousands of dollars with a lower interest rate. Plus, if you have a lower interest rate, you'll likely also have a lower monthly payment.
- Simplify debt payments. Consolidating multiple debts into a personal loan means you'll have fewer bills to juggle. Also, you'll know exactly how long it will take to pay off your debt -- for example, if you get a five-year loan, you'll pay off your debt in five years.
- Improve credit score. One of the best ways to improve your credit score is by paying off debt.
What are the drawbacks of debt consolidation loans?
Most financial decisions, including personal loans for debt consolidation, have pros and cons. Here are some drawbacks of personal loans for debt consolidation.
Temptation to go into more credit card debt. If you use your loan to pay off your credit cards, you may be tempted to use those cards again, leaving you with a consolidation loan and credit card debt.
Not reading the fine print. The wrong loan can end up costing you money in interest or fees. As the borrower, it's up to you to make sure you understand all the costs involved and don't inadvertently put yourself in a worse situation. A high origination fee, late payment fees, and prepayment penalty will each take money out of your pocket.
There's also a unique risk with one type of loan: a secured loan. If you take out a secured loan, you'll need to put up collateral, such as your house or your car. You risk losing that collateral if you miss payments. An unsecured loan won't require collateral. To avoid the risk of losing your home or your car, consider unsecured debt consolidation loans first.
Can I get a debt consolidation loan with bad credit?
Yes, you can get a debt consolidation loan if you have bad credit. Here are a few extra steps you can take to increase your chances of getting approved:
- Check your credit reports for errors. Mistakes can drag your score down. To get started, order a free copy of your credit report from each of the three major credit bureaus. Then, read through each record carefully. If you find a mistake on your credit history, report it to the credit bureau.
- Get prequalified with multiple lenders. Getting prequalified doesn't affect your credit score -- usually (always ask your lender to confirm, though). By getting prequalified, you can find out whether or not a lender will offer you a loan.
- Consider secured debt or getting a cosigner. If you're having trouble getting approved for a loan, look into secured loans (loans that require collateral) or asking someone to cosign your loan. Doing one (or both) of these things can make it easier for you to get approved for a debt consolidation loan.
For more information, check out our list of best personal loans for bad credit.
TIP
Budgeting for loan payments
If you're getting ready to apply for a debt consolidation loan, start by outlining your current monthly expenses and income. Then, estimate how much you can put toward a loan payment each month. (Remember, the loan payment will replace some of your other debt payments.) That way, you'll know ahead of time what size loan payment is best for you -- and you can confidently work toward paying off that debt.
What should I look for in a debt consolidation loan?
The reason to look at personal loans for debt consolidation is to see if one would benefit your financial situation. Here's what you should look for:
A competitive interest rate and APR
To start, look for a good loan interest rate. Ideally, this should be below the interest rate of your existing debt.
But the interest rate is not the only cost you'll pay: There are other fees associated with loans. Also, the repayment term can affect how much interest you pay even more than the interest rate itself. To get a better picture of how much one loan costs compared to other loans, look at the annual percentage rates (APRs).
A repayment term that works for you
The faster you pay off your loan, the more money you'll save in interest fees. But a short loan term (the amount of time you have to pay off the loan) also means high monthly payments. If you don't have much room in your budget, a longer repayment term might work better for you. Check our guide to the pros and cons of longer repayment terms for more information.
Low or no fees
An origination fee is an upfront cost that lenders charge you for processing and distributing your loan. These can range from 1% to 8%. Say you take out a loan for $10,000. That means you may pay anywhere from $100 to $800 in origination fees. The best debt consolidation loans charge little or no origination fees. You can also check with your lender to learn if the fee is negotiable.
Some lenders charge you a fee if you decide to pay a loan off early. Look for a lender who does not charge prepayment penalties. That way, you can pay the loan off faster if you want to.
What are the alternatives to personal loans for debt consolidation?
Personal loans for debt consolidation can be a great way to meet your financial goals, but they're not the only option for paying off debt. Here are some alternatives to a debt consolidation loan:
Balance transfer credit cards
A balance transfer card offers a promotional rate, such as 0% intro APR for a set time period (typically 12 to 24 months). You apply online, give the new credit card company a list of the balances you want to be transferred, and wait to hear back from them. Transfer fees usually range from 3% and 5% of the balance transferred. But beware: The card's interest rate will rise dramatically as soon as the promotional period expires. You should plan to pay the card off in full before then.
Home equity loans
If you owe less on your home than it's worth, that means you have equity and can borrow against it. If you use a home equity loan for debt consolidation, you'll owe your mortgage lender instead of your other creditors (like credit cards). The interest rate might be lower on a home equity loan than you'd pay on a credit card or personal loan. The danger is that you could lose your home if you miss payments.
401(k) loans
While the best move with a 401(k) plan -- or any other retirement plan -- is to leave it alone and let it grow, some plans do allow for borrowing. You don't have to worry about your credit score when borrowing from your 401(k) because no credit check is required. A 401(k) loan generally lets you borrow 50% of your 401(k) balance or $50,000, whichever is less (with some exceptions). When you take out a 401(k) loan, you pay interest to yourself by putting your interest payments back into your retirement account. However, if you don't pay back the loan within five years, you will owe income tax and a penalty of 10%.
Is a debt consolidation loan right for you?
Yes, if consolidating means snagging a lower interest rate to save money. It's a great way to pay off existing debt.
If you find yourself worrying about how you're going to repay credit debt, a debt consolidation loan can help. From the time a lender approves your consolidation loan, you will know precisely the repayment term and when it's due to be paid off. If you're busy like most people, having one installment loan to pay can simplify your life. Rather than making sure each credit card payment is sent, writing a check for your auto loan, and double-checking that all other bills are covered, you pay a single monthly payment. And if you're a small business owner, a debt consolidation loan can pay off business debt.
The best financial options give you a way to solve today's money issues while helping you plan for the future. Properly used, a personal loan for debt consolidation can do just that.
| Lending Partner | Min. Credit Score | Loan Amounts | APR Range | Best For |
|---|---|---|---|---|
| SoFi | 680 | $5,000 - $100,000 | 7.99% - 22.73% (with all discounts) | Low APR for borrowers with high income |
| Upstart | None | $1,000 - $50,000 | 5.42% - 35.99% | Reducing high interest debt |
| LendingPoint | 585 | $2,000- $36,500 | 9.99% - 35.99% | Borrowers with poor credit scores |
| FreedomPlus | 640 | $7,500 - $50,000 | 7.99% - 29.99% | Diverse offerings |
| Discover Personal Loan | 660 | $2,500 - $35,000 | 5.99%-24.99% | Debt consolidation |
| Upgrade | 620 | $1,000 - $50,000 | 5.94% - 35.97% | Debt consolidation and fair credit |
| Best Egg | 640 | $2,000 - $50,000 | 5.99% - 35.99% | Debt consolidation |
FAQs
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Not necessarily. Using a loan to consolidate high-interest debt into a single, lower-interest loan can lower your debt-to-income ratio and help you pay the debt off faster. This improves your credit score.
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Not usually. For example, say you have several credit cards, each with a high interest rate and a balance. Using a consolidation loan to pay off the credit cards at a lower interest rate is a good way to retire the entire debt faster and save money. The trick is to refrain from charging the high-interest cards back up.
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You may be able to get a debt consolidation loan with bad credit, but the interest rate will be higher than it would be if you had good credit. Make sure the interest rate on the loan is low enough to justify paying any fees associated with the consolidation loan.
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Three to five years is common, but it depends on the term of the loan you get. Loan terms may range from one to 10 years.
About the Author
Dana has spent the last two decades as a business writer and news reporter, specializing in loans, debt management, investments, and business. She considers herself lucky to love her job and appreciates the opportunity to learn something new every day.
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Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Dana George has positions in Target. The Motley Fool has positions in and recommends Target and Upstart Holdings, Inc. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.
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