When you’ve fallen behind on your payments, it can feel like there’s nowhere to turn. One potential option to get organized and streamline your bills is debt consolidation. Debt consolidation lets you roll several debts into one loan with a lower interest rate and longer payment term. That means you’ll pay less each month to just one lender instead of many.
Featured Debt Consolidation Loan Companies
While it’s not as drastic as debt settlement or debt management, debt consolidation has its own pitfalls that you need to be aware of. If you need help educating yourself on your debt consolidation options, you can start with the section titled “What is Debt Consolidation?” If you already know debt consolidation is the right path for you, here is a preview of the best debt consolidation loans revealed by my research:
Next, I’ll dive into more detail on each company. I’ll later describe my methodology for choosing these three companies as the best debt consolidation loans online. I’ll also explain what debt consolidation is, different types of debt consolidation loans, where to get debt consolidation loans, alternatives to debt consolidation, and how to avoid scams.
Best Debt Consolidation Loan Companies
#1: Lending Club
Lending Club is the nation’s largest peer-to-peer lender. Personal loans via Lending Club range from $1,000 to $40,000 at APRs from 5.99% to 35.89%* APR. Best APR is available to borrowers with excellent credit. The website is clean and transparent, with easy-to-find rates and fees, a clear description of the lending process, and a streamlined rate-quote tool.
Lending Club also requires a minimum credit score of 640 and has slightly stricter criteria for making a loan than other leading debt consolidation loan companies, including a stricter debt-to-income ratio and more reliance on credit history. Lending Club also charges a $15 check-processing fee every time you pay with a check.
- Available in all states except Iowa and West Virginia
- Funds loans up to $40,000
- Competitive interest rates
- Thorough, transparent website with easy-to-find rates and fees
- BBB accredited with A+ rating
- Will only allow 36- or 60-month terms
- You might have to wait a week or more for your loan to be funded
- Slightly pickier about borrowers
- Charges a check-processing fee
PersonalLoans.com can help connect you with lenders in all 50 states. APRs range from 5% to 36% for loans up to $35,000. Several types of loans are on offer (though eligibility will vary by state): peer-to-peer loans, bank loans, and installment loans.
The site is informative and well designed, but this is only a referral site. That makes it difficult to know in advance what kind of APR you will be offered, what fees might come attached to your loan, and other crucial information that can be easier to discern with a direct lender.
- Available in 50 states
- Funds loans up to $35,000
- Competitive interest rates
- Well designed, informative website
- Website is only a referral site
- You might have to wait to learn full details about APR or fees attached to loan
Avant focuses on loans for borrowers with slightly lower credit scores than Lending Club. Avant is not a peer-to-peer lender and instead directly funds each loan itself. That can be an advantage for borrowers who need cash more quickly because Avant can get you your funds in as little as a day.
I received answers to my questions through a helpful online chat service, which was a nice bonus with Avant. However, you’re subject to higher APRs with Avant, which means this probably won’t be the best choice for those with good or excellent credit.
- Available in 46 states
- More flexible payment terms, ranging from 12 to 48 months
- Borrowing limit of $35,000
- Funds available in as little as a day
- No unsuccessful payment fees
- BBB accredited with A rating
- Higher advertised APRs (9.95% to 36%)
- Shorter grace period (10 days) and heftier fee ($25) for late payments in most states
Upstart, which makes loans from $3,000 to $25,000, focuses on younger buyers who might be having trouble getting loans due to a shorter credit history. This new peer-to-peer lender will consider factors such as your alma mater, job history, major, and even your grades and test scores when deciding on APRs, which range from 6.68% to 24.58%. Unfortunately, you probably won’t be able to get a loan here if you aren’t a college graduate. Upstart also only makes three-year loans, so if you want a longer or shorter term, you’re out of luck.
Springleaf Financial is a solid option for borrowers who may not have the best credit. Though you can apply online, the company has over 820 branches around the country for those who want to do business in person. Secured loans may be an option at Springleaf, too.
The company has an A++ rating and is accredited with the BBB. Springleaf is only an option in 41 states, however. The company’s website also offers some nice educational information about loans.
LightStream, a division of SunTrust Bank, offers debt-consolidation loans from $5,000 to $100,000 at extremely low APRs: 5.99% to 9.99%. It also offers flexible terms from 24 to 84 months, and there are no fees whatsoever. The catch? You’ll need top-notch credit, significant income, and substantial assets to qualify. That’s a tall order for most people who are considering debt consolidation, so this is definitely a niche service.
Prosper, though it requires a minimum credit score of 640, Prosper offers unsecured personal loans from $2,000 to $35,000 and competitive APRs from 5.99% to 32.99%.
Prosper takes into account a range of factors other than your credit history when determining your APR. Its website is easy to navigate, with clearly disclosed rates and fees. Prosper does charge an origination fee of 1% to 5% of your loan, and there are fees for late payments ($15 or 5% of the outstanding amount) and unsuccessful payments ($15 per occurrence).
How I Picked the Best Debt Consolidation Loans
The best debt consolidation loans have a balance of low fees, competitive interest rates, and flexible terms. Here is a full list of the criteria I considered while making my picks:
- Wide range of loan amounts: Some online lenders will cap their loans at relatively low amounts such as $5,000 or $10,000, shutting out potential borrowers. The best lenders will approve loans for at least $25,000 or $30,000.
- Wide range of loan terms: Some online lenders are somewhat rigid on the length of loan terms they’ll offer. The best lenders are more flexible, allowing for shorter terms (such as 12 months) and longer terms (such as 72 months or more).
- Competitive interest rates: Though the interest rate you can land will vary depending on your credit, the best lenders keep their range of possible rates competitive.
- Reasonable fees: If the lender charges fees other than the loan’s interest rate (these include origination fees, late payment fees, and unsuccessful-payment fees), they are reasonable compared to those charged by competitors.
- Transparency: Instead of immediately requiring you to input your personal information, the best lenders immediately tell you how much you can borrow, what kind of rate you might qualify for, potential terms, and fees.
- Wider geographical reach: States regulate online lending differently, and it’s common for lenders to do business only in certain states. The best lenders have a wider reach than their competitors.
- Credibility and reviews: I looked up online reviews and Better Business Bureau pages for each lender. I also considered how long the company has been in business.
After considering all of these criteria, Lending Club, Avant, and PersonalLoans.com rose to the top of my list. But before you take out a debt-consolidation loan with these or any other lenders, read on to make sure you know as much as possible about debt consolidation. I’ll cover the basics of debt consolidation, types of loans, how it differs from other debt-relief programs, risks, alternatives, and how to avoid scams.
What Is Debt Consolidation?
Debt consolidation is true to its name. When you consolidate your debts, you’re taking out a new, bigger loan to pay off a bunch of your existing debts. Instead of paying several different creditors, you’ll be paying a single bill for the new loan. Your monthly payment will likely be lower with the new single loan than the combined payments of your previous debts. Unlike debt settlement, you do not actually reduce the principal amount you owe — you will still be paying the full amount.
Debt consolidation is not without risks. Experts warn against consolidation unless you’re truly struggling to make minimum payments on your debts each month and are ready to turn over a new leaf with your spending habits. Here are the pros and cons of debt consolidation:
- Short-term relief: A single loan with a lower interest rate, spread out over a longer term, can drastically reduce the amount you pay each month.
- It’s easier to stay organized: It can be hard to keep track of several bills and monthly due dates, leading to more late or missed payments, but it’s easy to remember to pay just one bill.
- No damage to your credit: Debt consolidation keeps your credit intact since you’re still paying off all of what you owe. This isn’t always the case with debt settlement, debt management plans, and bankruptcy.
- Long-term pain: Your lower monthly payment is usually the result of a longer payment term, not just a lower interest rate. In other words, instead of paying a lot for a short period, you’ll be paying a little for a long period. And you might be paying much more in interest over the long run, once it’s all said and done.
- Big risks, depending on your new loan: If you use a secured loan to consolidate your debts, the collateral associated with that loan (for instance, your house) will be at risk if you can’t make your new payments. Falling behind on an unsecured loan isn’t as dire, but it could still trash your credit score.
- You’re fighting debt with debt: While debt consolidation can work for the fiscally disciplined, bad habits might be the reason you’re considering consolidation in the first place. If you don’t change your habits, you may end up much deeper in debt than you were before you consolidated.
What Kinds of Debt Consolidation Loans Are There?
Secured loans are tied to some sort of collateral — a valuable asset that the lender can take in the event you no longer pay your bills. Common collateral includes your house or car. It’s easier to get a secured loan since there is less risk to the lender. For the same reason, it’s also usually easier to get a larger amount at a lower interest rate. The interest may also be tax-deductible.
Of course, while it’s easier for you to land this kind of loan, you could also lose your assets if you default. You may also be paying down this kind of loan for much longer. Home equity loans are among the most common kind of secured debt-consolidation loans.
In contrast, an unsecured loan isn’t tied to collateral. Because of that, it’s less risky to you — by defaulting, you’re mainly risking credit damage instead of your house, car, or other assets. Unsecured loans also usually take less time to pay down.
However, getting an unsecured loan is tougher, especially if your credit is tarnished. Because the lender takes on more risk with unsecured loans, you’ll probably be offered a higher interest rate and a smaller amount, and there are no tax benefits. Personal loans, credit-card balance transfers, and loans offered solely for the purpose of debt consolidation are among your options here.
Where Do I Get a Debt Consolidation Loan?
If you need a secured loan to consolidate your debt, you’ll likely be limited to a brick-and-mortar lender such as a bank or credit union. If you’re considering an unsecured loan to consolidate your debt, you’ll have more options.
It’s hard to beat the convenience of online lenders, several of whom I reviewed above. You can also apply for a personal loan at most local banks and credit unions — while the lending process can move slowly, you can get more personal service this way.
Finally, if you can roll your debt onto a credit card with a very low introductory rate, this is a viable option, too. However, you’ll need to be disciplined enough to pay it off before your introductory rate expires and leaves you with the (much, much) higher ongoing interest rate.
You may also be wondering about debt-consolidation companies that will make you a loan to pay off your existing debts. It can be very hard to find a company that isn’t actually pushing debt management or settlement plans, both of which I describe below. Above all else, the best debt consolidation companies are transparent about their methods. For more about avoiding scams, keep reading.
Alternatives to Debt Consolidation
If debt consolidation doesn’t seem quite right for your situation, there are several other debt-relief methods. Of course, all of these strategies have their own pros and cons, and only you can decide whether they are better or worse for your unique situation.
Counselors working on behalf of reputable nonprofit credit-counseling agencies can help you create a plan to better manage your money and budget for debt payments. Of course, this strategy doesn’t actually reduce your debt, but it also has fewer risks than consolidation or settlement and debt management, discussed below.
As I mentioned above, debt consolidation doesn’t reduce your loan principals. Debt settlement does. A debt settlement company negotiates with creditors on your behalf.
When you sign up, you’ll likely begin contributing to a special account set up by your debt settlement company. Once it reaches a certain level, the company will reach out to your creditors in hopes that they’ll accept a lump sum that’s less than what you actually owe. After that sum is paid, you’re no longer indebted to the creditor.
How long it takes largely depends on how quickly you can save enough to begin negotiations, but most companies allow two to four years for the process. Settlement has big risks, though, including big fees, damage to your credit score, and tax liability. Take a look at my separate post on debt settlement companies for more details.
In debt management, a company negotiates with your creditors to lower your interest rates and monthly bills, but the principal remains the same. You’ll pay the debt management company, and it distributes the money to your creditors.
Lower rates can save you a lot of money, and you’ll have an easier time staying organized. But your credit can take a hit from participating in these programs if the company isn’t on the ball with payments, and potential lenders might shy away if they know you’re in a debt management program. You’ll also have to close all of your accounts and agree not to open new ones.
Finally, it can also be tricky to separate legitimately helpful programs from scams and shady fly-by-night companies. Take a look at my separate post on debt management companies for more details.
For most people, bankruptcy is the nuclear option. The negative implications of bankruptcy can certainly be severe, including a massive impact on your credit.
If you’re able to consolidate your debt with a loan that you can comfortably pay off and can avoid acquiring new debt during the process, debt consolidation is a much less drastic option than bankruptcy. That’s because your credit won’t suffer any more of a hit with consolidation when it’s done correctly.
Beware of bankruptcy lawyers who tell you bankruptcy is better than debt consolidation. They have a vested interest in clients using their services, and many also confuse debt consolidation with debt management or settlement, discussed above. These two services can hurt your credit, making bankruptcy a more viable option if you’re considering them.
Avoiding Debt Consolidation Scams
If you’re in the market for a debt consolidation loan, remember to keep your guard up. Unscrupulous companies target people seeking any form of debt relief, including personal loans. Here are some things to keep in mind:
- You don’t need a middleman. Many companies that claim to offer debt consolidation actually are pushing debt management and debt settlement. If you are simply looking to consolidate, no one needs to negotiate with your creditors for any reason.
- You should be the one to initiate contact. Shady lenders are more likely to aggressively search for and hound potential borrowers.
- You shouldn’t pay upfront fees. You should never be charged simply to apply for a debt consolidation loan.
- Be wary of guarantees. Legitimate lenders simply can’t guarantee that you’ll qualify for a personal loan without knowing your income, credit score, and other personal information. If you see such a guarantee, move along.
- Reject scare tactics. Legitimate lenders will not discourage you from searching for the best deal or pressure you into borrowing more than you can afford.
- Do your homework. Look at the company’s Better Business Bureau rating and any other online reviews you can find. Almost every company will generate complaints, but some will generate far more than others.
Debt consolidation can be an excellent option if you’re ready to dig your way out of debt for good. The best debt-consolidation loans will allow you to stay organized and pay off your debt with a reasonable interest rate and affordable monthly payment. If you’re uncertain where to begin, the lenders I profiled above are worth a look. Good luck!