Debt consolidation is the process of combining multiple high-interest debts into a single personal loan with a fixed monthly payment. Consolidation loans are used for paying off any type of unsecured debt, including credit card debt, student loans and medical bills. Using a personal loan for debt consolidation makes most sense when the new loan has a lower interest rate than your existing debts.
What are the benefits of a debt consolidation loan?
The two main benefits of consolidation loans are that they:
- simplify your monthly payments
- save you money
A single monthly payment is obviously much easier to manage than multiple monthly payments. Plus, if the interest rate on your debt consolidation loan is lower than the rate on your old debts, you’ll end up paying less overall to the lender.
One thing to be sure about before using a personal loan for debt consolidation is that you can handle the higher monthly payments. With multiple debts, you may prioritize some of the monthly payments over others. But with a single debt, you’ll need to pay the whole amount each month – so be careful not to commit to an amount you can’t handle.
How can I get a debt consolidation loan?
A debt consolidation loan is just a personal loan you use to consolidate debt, and debt consolidation companies are really just personally loan lenders by another name.
The key to finding the best personal loan for debt consolidation is to shop around for the best rates and terms. Many lenders let you see prequalified rates without damaging your credit score – which is especially useful if your credit score is already low because of spiralling debt. We recommend comparing rates and terms from at least 3-5 debt consolidation companies before submitting a formal application.
Start consolidating your debt today with one of the following best personal loans for debt consolidation. Compare their rates, terms and loan amounts to see which is the best one for you.
- Minimum credit score: 680
- Loan amount: up to $100,000
- Loan term: 36-84 months
- APR range: 5.99% - 25.05% (with AutoPay)
Why go with SoFi? It’s a social company with extra benefits like networking, unemployment protection, and employment searches
SoFi is an excellent lender to work with on all fronts, but it really comes through for borrowers consolidating debt. It has no fees, APRs of 5.99% - 25.05% (with AutoPay), high loan limits up to $100,000, and flexible repayment terms of 36-84 months. Best of all is SoFi’s attitude towards borrowers. Once you take out a loan from SoFi, you become a member of a close-knit society that really looks out for its own. As well as running regular social events such as networking lunches, SoFi has a unique unemployment grace period that allows you to defer your loan payments in case you become unemployed, which can be a lifesaver if you're in the process of consolidating all your debt.
- Minimum credit score: 660
- Loan amount: $3,500 - $40,000
- Loan term: 36-72 months
- APR range: 6.99% - 19.99%
Why go with Marcus? It lets you defer payments after good behavior
Marcus by Goldman Sachs is backed by a company that’s been around for almost 150 years! Those are numbers you just can’t argue with, and so are the other stats on Marcus’ docket when it comes to debt consolidation. You can get tremendous repayment terms from 36-72 months, loan amounts from $3,500 - $40,000, and APRs of 6.99% - 19.99%. The low is slightly higher than some competitors (but not by much), and the high is much lower than other lenders. Marcus also has an incredible feature that lets you skip a payment once every year if you have been paying your loan back responsibly. Finally, with no fees to pay, it’s not surprising that Marcus is one of the leading lenders in the industry.
- Minimum credit score: 580
- Loan amount: $1,000 - $100,000
- Loan term: 24-60 months
- APR range: 4.99% - 35.99%
Why go with Fiona? It offers high loan amounts from prominent lenders
Fiona is a search comparison engine (also known as a marketplace) for debt consolidation companies and other lenders. It offers APRs from 4.99% - 35.99%, making a solid choice if you’re looking to consolidate debt! Also, you can borrow anything from $1,000 - $100,000, so Fiona really covers any type of borrower. Finally, this lender works with credit scores as low as 580. That is one of the lowest score acceptances you’ll find anywhere. Just bear in mind that Fiona is not a direct lender, so terms can change depending on who you end up with. Fees will also vary based on the lender.
- Minimum credit score: 580
- Loan amount: $1,000 - $100,000
- Loan term: 3-96 months
- APR range: 3.49% - 35.99%
Why go with Monevo? It offers tremendous loan term flexibility
Monevo is another reliable marketplace that matches borrowers with top providers of debt consolidation loans. You can get loans from $1,000 - $100,000 with flexible repayment terms ranging from 3-96 months, which can come in useful if you’re trying to get out of debt. What’s more, Monevo charges some of the lowest introductory APRs anywhere, ranging from 3.49% - 35.99% if your credit can swing it. Some of Monevo’s lending partners even work with credit scores of 580, which is lower than most debt consolidation companies.
- Minimum credit score: 600
- Loan amount: $1,000 - $40,000
- Loan term: 36 or 60 months
- APR range: 6.95% - 35.89%
Why go with LendingClub? You only need a credit score of 600 and there is no prepayment fee
LendingClub has some of the most flexible terms around. You can get a loan for anywhere from $1,000 - $40,000 with repayment terms of 36 or 60 months. APRs are pretty average, ranging from 6.95% - 35.89% depending on creditworthiness. Best of all, though, LendingClub works with credit scores as low as 600, making it a worthwhile choice for debt consolidation if your credit record has seen better days. Various fees such as origination fees and prepayment penalties will vary based on the specific lender you go with, but you can expect a 1% - 6% origination fee, $15 unsuccessful payment fee, and late payment fee of 5%.
Above are the top 5 personal loans providers for debt consolidation, and below are 5 more that are worthy of an honorable mention:
Credible is another great marketplace that helps you compare debt consolidation loans from multiple lenders. Rates start from 4.99% APR, terms range from 12-84 months, and loan amounts range from $600 to $100,000. Just fill out Credible’s short online form to quickly compare pre-qualified rates from vetted lenders. The service is quick, free, and it won’t affect your credit score in any way.
Upgrade is a fintech (financial technology) lender that uses a proprietary algorithm to assess and approve applicants for debt consolidation and other types of personal loans. With Upgrade, it only takes minutes to see your prequalified rate, with no impact to your credit score. Upgrade has personal loans for debt consolidation for up to $35,000, all of them with low fixed rates and no prepayment fees.
8. Best Egg
Best Egg is a direct lender offering personal loans for any purpose, including debt consolidation. Loan amounts range from $2,000 to $35,000, interest rates from 5.99% to 29.99%, and repayment terms are 36-60 months. The application process is fast and simple. Helpfully, Best Egg lets you see personalized, pre-qualified rates without a hard credit check.
Lightstream, a division of SunTrust Bank, offers some of the most attractive personal loan rates on the market. With a minimum APR of 3.49% and maximum of 19.99%, it’s a good option if you have strong credit but also happen to have multiple debts. Lightstream is so transparent that you don’t even have to request a quote to see where you stand. Just go to the Lightstream home page and scroll down about halfway to see a table of APRs for different loan amounts and repayment terms.
Avant offers personal loans for debt consolidation, but we actually recommend it for its other product: credit-building credit cards. Avant offers credit cards with clear and transparent $300 to $1,000 credit limits. Borrowing and repaying small amounts is an effective way of building your credit score; and a strong credit score is key to getting a great rate on a debt consolidation loan.
When to Consolidate Your Debt with a Personal Loan
Consolidating your debt via a personal loan can be a good idea in the following situations:
- You want to pay a lower interest rate
The best way to alleviate debt is to pay it off responsibly one month at a time. Unfortunately, too many people are struggling with high interest rates that don't let them get ahead of their debt. Lowering your interest rate can help you put more money towards your actual debt and eventually pay it off.
- You have several debt payments to make each month
Paying off multiple credit cards each month can be difficult. Combining your debt into one simple payment makes it much easier to manage your monthly debt expenses and stay on top of your finances in general.
- You’re working with lousy terms
If you are digging yourself deeper into debt because of high monthly payments that you can’t meet, a personal loan can help you pay less each month. It might take longer to pay off the debt, but at least you’ll be making consistent monthly payments, instead of racking up more debt.
Do the Math First
The most important question for you to ask is, will this loan save you money? Pay attention to the fees and rates that are being offered, so you don't get stuck with a bigger problem even than you started with. Here's an example of how a personal loan can help with your debt consolidation:
Let’s say you have a combined credit card debt of $10,000. You are currently paying 15% interest on that debt. Over approximately 4 and a half years, you’ll pay $3,750 in interest! Now, let's say you lower your interest to 10% for a 2-year loan. By the end of this loan term, you'll have paid out $1,075. That's a $2,675 savings in interest payments for the same $10,000 debt that you’ve now paid off.
Debt Consolidation Tips
Going with a reputable lender is the first step in the right direction towards paying off your debt responsibly. Here are a few more tips for debt consolidation ease:
1. Make your payments every month and on time. The worst thing you can do after taking out a loan to consolidate debt is to be delinquent with the payments. Pay on time, and watch your debt shrink and your credit score rise.
2. Read online reviews. By reading reviews of the top loan companies, you'll get a better feel for the type of lender you’re getting into bed with. Advertisements can be hyped up, but real user testimonials tell you the true story.
3. Make sure you find a lender that will give you a lower APR than you are currently paying. Otherwise, it doesn’t pay to consolidate your debt. Since there is competition in the industry, this shouldn't be too hard. What’s more, you can usually get other benefits thrown into the deal.
4. Look for lenders that won’t hurt your credit with a hard pull. Many top name lenders will only do a soft credit pull when you apply and this helps because it means your credit score won’t be affected and you’ll have more options when consolidating your debt.