Best Debt Consolidation Loans for 2020

When you’re drowning in debt, it can feel like there’s no way out when interest keeps mounting with every passing day. A debt consolidation loan will replace all of your debts with one single loan, monthly payment and interest rate to help you keep track of your debt payoff journey. The best debt consolidation loans have low interest rates, flexible loan amounts and longer terms to help you save money in the long run.

Filter & Sort

Check Your Personal Loan Rates

with our trusted partners at Bankrate.com

Answer a few questions to see which personal loans you pre-qualify for. It's quick and easy, and it will not impact your credit score.

LENDING PARTNER
APR FROM
TERM
MAX LOAN AMOUNT

We use our proprietary SimpleScore methodology to weigh your available options and find the very best lenders for easy consolidation loans that will eliminate your debt with the lowest rates.

The best debt consolidation loans of 2020

  • Best Peer-to-Peer Lending: LendingClub
  • Peer-to-Peer Runner-Up: Prosper
  • Best Bad Credit Marketplace: PersonalLoans.com
  • Best Debt Consolidation Lender for Great Credit: LightStream
  • Best Debt Consolidation Lender for Average Credit: Avant
  • Best Credit Health Tools: Upstart
  • Best Debt Consolidation Lender for Poor Credit: OneMain
  • Best for High-Income Earners: Best Egg

Debt consolidation loans at a glance

Lender APR Loan Amount Terms Fees
LendingClub 10.68%–35.89% $1,000–$40,000 3–5 years Origination and late fee
Prosper 5.32%–35.97% $2,000–$40,000 3–5 years Origination fee: 2.4% to 5%
PersonalLoans.com Varies $1,000–$35,000 90 days–6 years Varies by lender
LightStream 5.95%–19.99% $5,000–$40,000 3–5 years No fees
Avant 9.95%–35.99% $2,000–$35,000 2–5 years Administrative fee: 4.75%
Upstart 4.66%–35.99% $1,000–$50,000 3–5 years Origination and late fee
OneMain 18%–35.99% $1,500–$20,000 2–5 years Origination and late fee
Best Egg 5.99%–29.99% $2,000–$35,000 3–5 years Origination and late fee

*Rates accurate as of July 24, 2020

LendingClub – Best Peer-to-Peer Lending

LendingClub

Lending Club is the largest online lender with its own easy grading system that will determine your rates.

APR
10.68%–35.89%
Terms
3–5 years
Loan Amount
$1K–$40K
SimpleScore
3.2 / 5.0
close
SimpleScore
LendingClub
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
Lending Club has a minimum credit score of 600, and there is a joint loan option that’s especially helpful if your credit score needs some help. You can even qualify with a soft credit check, so there’s no damage to your credit score if you don’t get approved or decide not to move forward. You can apply online in just minutes, but you’re going to have to be patient with processing since most customers don’t receive funding until after four days or more.
Full review

Our Two Cents — In addition to flexible options, LendingClub will handle payments directly with your creditors, so you don't spend your life being chased by debt collectors.

Prosper – Peer-to-Peer Runner Up

Prosper

Prosper is a solid option for peer-to-peer lending if you have a lot of money to stash in the bank.

APR
5.32%–35.97%
Terms
3–5 years
Loan Amount
$2K–$40K
SimpleScore
3.2 / 5.0
close
SimpleScore
Prosper
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
A minimum credit score of 640 or more is recommended, as well as a minimum 50% debt-to-income ratio. Prosper moves a little faster with its processing, but not by much, so you’ll still have to wait three days for funding. The origination fee can take a nice chunk out of your earnings, but you have up to five years to pay back the loan.
Full review

Our Two Cents — Prosper doesn’t really deal with chump change, so this is really only best when you have significant income.

PersonalLoans.com – Best Bad Credit Marketplace

PersonalLoans.com

When you’re struggling with bad credit, PersonalLoans.com gives the flexibility you need.

APR
Varies
Terms
90 days–72 months
Loan Amount
$1K–$35K
SimpleScore
3.75 / 5.0
close
SimpleScore
PersonalLoans.com
3.75
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    5
PersonalLoans.com falls among the lower median of the interest rates here, which is surprising given that it caters to a crowd with less-than-stellar credit. You also have the option to choose payments twice a month to pay off your loan even faster.
Full review

Our Two Cents — If you’re struggling with poor credit, don’t despair because PersonalLoans.com offers a light at the end of the tunnel.

LightStream – Best Debt Consolidation Lender for Great Credit

LightStream

You can find yourself debt-free after saving a fortune on fees with debt consolidation from LightStream.

APR
5.95%–19.99%
Terms
3–5 years
Loan Amount
$5K–$40K
SimpleScore
4.8 / 5.0
close
SimpleScore
LightStream
4.8
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
You will need great credit if you plan to work with LightStream for a low-interest consolidation loan. The website indicates that you need a minimum credit score of 660 and a pretty spotless payment history. If you can meet those requirements, you could be rewarded handsomely.
Full review

Our Two Cents — LightStream gives you some of the best APRs for your debt consolidation, but the qualification process is far from a walk in the park.

Avant – Best Debt Consolidation Lender for Average Credit

Avant

Most borrowers will find Avant refreshingly approachable with reasonable requirements for the average credit.

APR
9.95%–35.99%
Terms
2–5 years
Loan Amount
$2K–$35K
SimpleScore
3.2 / 5.0
close
SimpleScore
Avant
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    2
  • Support
    4
  • Fees
    3
Avant won’t make payments to your creditors for you, but it will work with your credit more than other lenders. There is a minimum credit score of 580 for debt consolidation loans, which is the lender’s primary bread and butter. That means Avant knows debt consolidation well and can provide greater support than the average lender.
Full review

Our Two Cents — Here, you’ll need good enough credit to stand on your own, because Avant doesn’t allow joint debt consolidation loans.

Upstart – Best Credit Health Tools

Upstart

Upstart will help you rebuild your burgeoning credit using your job history or college degree.

APR
4.66%–35.99%
Terms
3–5 years
Loan Amount
$1K–$50K
SimpleScore
3.4 / 5.0
close
SimpleScore
Upstart
3.4
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    3
  • Fees
    3
Upstart sits on the cusp of technology, using advanced machine learning to analyze your application for earning potential. It considers things like your job history and education instead of basing your approval entirely off your credit score. Just be prepared for the fees, because Upstart definitely doesn’t won’t give you a pass there.
Full review

Our Two Cents — When your credit is still new, Upstart will lend a helping hand and jumpstart your debt consolidation process with terms that are reasonable.

OneMain Financial – Best Debt Consolidation Lender for Poor Credit

OneMain Financial

When you’re struggling with poor credit, there are very few companies that are better equipped to help than OneMain Financial.

APR
18.00%–35.99%
Terms
2–5 years
Loan Amount
$1.5K–$20K
SimpleScore
3 / 5.0
close
SimpleScore
OneMain Financial
3
  • Rates
    2
  • Loan Size
    3
  • Customer Satisfaction
    N/A
  • Support
    5
  • Fees
    3
OneMain Financial has made a name for itself by offering loans to those with bad credit, but we also love the fantastic accessibility that it offers, as well. You have the option of applying online or via chat with a live loan specialist, or you can choose to visit one of the many nationwide brick and mortar branches for extra support one-on-one.
Full review

Our Two Cents — The fees may be high, but OneMain has your back when everyone else says no.

Best Egg – Best for High-Income Earners

Best Egg

Best Egg simplifies the process with an easy online quote process and an even faster approval process.

APR
5.99%–29.99%
Terms
3–5 years
Loan Amount
$2K–$34K
SimpleScore
3.75 / 5.0
close
SimpleScore
Best Egg
3.75
  • Rates
    4
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    3
Best Egg is an all-around great choice for debt consolidation, simplifying the loan process so you can begin tackling your debt immediately. You only need average credit to take advantage of the better rates currently available, and Best Egg won’t pull your credit before giving you a quote. With 24-hour loan approval and 72-hour funding, it makes it pretty easy to handle debt consolidation. However, to secure the best rates with Best Egg, you’ll need to earn $100,000 a year.
Full review

Our Two Cents — This middle-of-the-road pick won’t charge you a dime if you pay off your loan in advance.

What is a debt consolidation loan?

It is all too easy to fall down the rabbit hole of debt. One debt becomes another and then another, and before you know it, you are so buried in debt that you don’t see the way out. When your debt grows wildly out of control, a debt consolidation loan can be a great solution to resolve your debt in one fell swoop. By taking out one big loan, you can pay off all of your existing debts and only have to worry about one loan going forward. A debt consolidation loan can also reduce the amount you pay each month and also shorten the total length of your financial obligations, so you get out of debt that much faster.

How debt consolidation loans work

When you have bad credit, you face far higher interest rates than if you have good credit. A debt consolidation loan is a personal loan that gives you a large sum upfront that you use to pay off your debt. From there, you only have to repay your loan for an easier, more convenient way to eliminate your debt. It can also restore your credit that much faster because there are not multiple debts being reported to the credit bureaus each month. Your new debt consolidation loan should offer a lower interest rate than those associated with your outstanding debt. Debt consolidation lenders use FICO scoring to approve or deny your loan, and while there are lenders who work with bad credit, you will have far more options available to you when you have excellent credit.

What you need before applying

Before applying for a debt consolidation loan, you should pull your credit report to see where you stand with your debts. Your report will also give you your credit score so you can decide which lenders are worth your time and which ones you shouldn’t even bother applying to. You also want to be sure that you are able to commit to the repayment terms with a steady source of income to make your payments on-time.

How to get a debt consolidation loan

Many lenders will allow you to prequalify using a soft credit check that won’t ding your credit. This will help you get a general idea of how much you can qualify for, as well as some of the other details regarding that particular lender’s loan. Every loan is different with its options; while many loans have terms of three to five years, you will find some lenders who offer shorter or longer terms. How much you can borrow will also depend on each lender, so if you are looking for a larger loan, you may not have as many options as if you were looking for a $5,000 loan. Fees are another area where lenders can vary; while some loans may carry steep origination fees or prepayment penalties, others may feature significantly lower fees or none altogether. The difference can amount to thousands of dollars over the life of your loan.

How to choose the best debt consolidation loan for you

  1. Prepare your finances. Before you apply for a debt consolidation loan, it’s a great idea to comb through your credit report. Repaying your smaller debts can improve your credit score and allow for a much lower interest rate on your loan. You should also take this time to resolve any late payments so you borrow as little as possible for your debt consolidation loan.
  2. Itemize your debts. Before you can apply for a loan, you need to figure out how money you actually need. Create a detailed list of all of your debts and calculate the total to calculate the total for your loan.
  3. Consider your lender. While banks are the most traditional type of lender for a debt consolidation, they are far from your only choice. There are also online-based lenders who can provide faster, more efficient service, and credit unions can use their not-for-profit state to cater to those who struggle with their credit.
  4. Shop your options. It is important to still shop your options, even if you find that you prefer one kind of lender over another. You may be surprised by the rates that you find. The difference of just a few points can make an enormous difference in how much the loan will cost you, and you can save a ton of money if you can find a lender with low or no fees.
  5. Apply for a loan. There are certain things you will need to provide when you apply for a loan. Be prepared to provide personal identification and information regarding your employment. You may also have the option to add a co-signer to your loan so you can qualify for better rates.

Alternatives to debt consolidation loans

A debt consolidation loan is not your only option. You can pay off your debts using a few different methods. These may take longer but will cost far less than the interest that would accompany an installment debt consolidation loan.

These are some popular alternatives to debt consolidation loans.

  1. Snowball method
    If you want to pay down your debt yourself, the snowball method is a great way to tackle your debt. This means that you begin working from the smallest debt to the biggest, slowly working your way through all of your bills until they are resolved.
  2. Avalanche method
    If you will sleep better knowing that your biggest debts are paid, you may want to use the avalanche method. This method involves paying off the loans with the most interest first, so you tackle the largest, fastest-growing debt before it balloons out of control.
  3. Reorganizing budget
    Sometimes, all it takes is a little organization. If you feel that your debt is manageable, you could benefit from reorganizing your budget. Changing the way that you spend your money and tackle your debt could be all the change you need to eliminate your debt and get back on track.

Debt consolidation loan FAQs

When is it a good idea to get a debt consolidation loan?

Be sure that you have exhausted all options before committing to repayment terms that will last several years. A debt consolidation loan is great to make your debt more manageable or if you want to save on interest from multiple loans. Just make sure that you have the credit score to qualify and that you can make the monthly payments.

When is it a bad idea to get a debt consolidation loan?

Debt consolidation isn’t a good match for everyone. If you have a very low credit score, you may not qualify for a loan at all. You will also need to prove that you have a regular source of income, or you could be denied.

Can I consolidate student loans?

Student loans are a popular reason to use a debt consolidation loan, and it uses a specific kind of loan called a Direct Consolidation Loan. You can use this loan to pay off a single or multiple student loans, while enjoying just one convenient monthly payment.

Too long, didn’t read?

A debt consolidation loan can be a great option if you have a lot of debt or if you are paying super-high interest rates on your existing loans. Your credit score will largely determine what kind of interest rate and loan terms you are offered, if you even qualify at all. Just remember to shop your options thoroughly and consider all of the terms in detail before committing to a long-term loan.

Keep reading

Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For debt consolidation loans, we compared interest rates, loan amounts, customer satisfaction, support and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing a debt consolidation loan provider. Be sure to continue your research and shop around for the best debt consolidation loan that fits your specific needs.

We welcome your feedback on this article and would love to hear about your experience with the debt consolidation loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

Advertiser Disclosure
Lena Borrelli
Lena Borrelli
Contributing Writer

Lena Borrelli is a Tampa-based freelance writer who has worked with leading industry titans, such as Morgan Stanley, Wells Fargo, and Simon Corporation. Her work has most recently been published on sites like TIME, ADT, Fiscal Tiger, Bankrate and Home Advisor, as well as many other websites and blogs around the world.

Reviewed by

  • Courtney Mihocik is an editor at The Simple Dollar who specializes in insurance, personal finance, and loans. Previously, she wrote and edited for Interest.com, PersonalLoans.org, Ballantyne Magazine, Thread Magazine, The Post, ACRN, The New Political, Columbus Alive and the Institute for International Journalism.

Best Debt Consolidation Loans for 2020

When you’re drowning in debt, it can feel like there’s no way out when interest keeps mounting with every passing day. A debt consolidation loan will replace all of your debts with one single loan, monthly payment and interest rate to help you keep track of your debt payoff journey. The best debt consolidation loans have low interest rates, flexible loan amounts and longer terms to help you save money in the long run.

Filter & Sort

Check Your Personal Loan Rates

with our trusted partners at Bankrate.com

Answer a few questions to see which personal loans you pre-qualify for. It's quick and easy, and it will not impact your credit score.

LENDING PARTNER
APR FROM
TERM
MAX LOAN AMOUNT

We use our proprietary SimpleScore methodology to weigh your available options and find the very best lenders for easy consolidation loans that will eliminate your debt with the lowest rates.

The best debt consolidation loans of 2020

  • Best Peer-to-Peer Lending: LendingClub
  • Peer-to-Peer Runner-Up: Prosper
  • Best Bad Credit Marketplace: PersonalLoans.com
  • Best Debt Consolidation Lender for Great Credit: LightStream
  • Best Debt Consolidation Lender for Average Credit: Avant
  • Best Credit Health Tools: Upstart
  • Best Debt Consolidation Lender for Poor Credit: OneMain
  • Best for High-Income Earners: Best Egg

Debt consolidation loans at a glance

Lender APR Loan Amount Terms Fees
LendingClub 10.68%–35.89% $1,000–$40,000 3–5 years Origination and late fee
Prosper 5.32%–35.97% $2,000–$40,000 3–5 years Origination fee: 2.4% to 5%
PersonalLoans.com Varies $1,000–$35,000 90 days–6 years Varies by lender
LightStream 5.95%–19.99% $5,000–$40,000 3–5 years No fees
Avant 9.95%–35.99% $2,000–$35,000 2–5 years Administrative fee: 4.75%
Upstart 4.66%–35.99% $1,000–$50,000 3–5 years Origination and late fee
OneMain 18%–35.99% $1,500–$20,000 2–5 years Origination and late fee
Best Egg 5.99%–29.99% $2,000–$35,000 3–5 years Origination and late fee

*Rates accurate as of July 24, 2020

LendingClub – Best Peer-to-Peer Lending

LendingClub

Lending Club is the largest online lender with its own easy grading system that will determine your rates.

APR
10.68%–35.89%
Terms
3–5 years
Loan Amount
$1K–$40K
SimpleScore
3.2 / 5.0
close
SimpleScore
LendingClub
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
Lending Club has a minimum credit score of 600, and there is a joint loan option that’s especially helpful if your credit score needs some help. You can even qualify with a soft credit check, so there’s no damage to your credit score if you don’t get approved or decide not to move forward. You can apply online in just minutes, but you’re going to have to be patient with processing since most customers don’t receive funding until after four days or more.
Full review

Our Two Cents — In addition to flexible options, LendingClub will handle payments directly with your creditors, so you don't spend your life being chased by debt collectors.

Prosper – Peer-to-Peer Runner Up

Prosper

Prosper is a solid option for peer-to-peer lending if you have a lot of money to stash in the bank.

APR
5.32%–35.97%
Terms
3–5 years
Loan Amount
$2K–$40K
SimpleScore
3.2 / 5.0
close
SimpleScore
Prosper
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    3
  • Support
    3
  • Fees
    3
A minimum credit score of 640 or more is recommended, as well as a minimum 50% debt-to-income ratio. Prosper moves a little faster with its processing, but not by much, so you’ll still have to wait three days for funding. The origination fee can take a nice chunk out of your earnings, but you have up to five years to pay back the loan.
Full review

Our Two Cents — Prosper doesn’t really deal with chump change, so this is really only best when you have significant income.

PersonalLoans.com – Best Bad Credit Marketplace

PersonalLoans.com

When you’re struggling with bad credit, PersonalLoans.com gives the flexibility you need.

APR
Varies
Terms
90 days–72 months
Loan Amount
$1K–$35K
SimpleScore
3.75 / 5.0
close
SimpleScore
PersonalLoans.com
3.75
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    5
PersonalLoans.com falls among the lower median of the interest rates here, which is surprising given that it caters to a crowd with less-than-stellar credit. You also have the option to choose payments twice a month to pay off your loan even faster.
Full review

Our Two Cents — If you’re struggling with poor credit, don’t despair because PersonalLoans.com offers a light at the end of the tunnel.

LightStream – Best Debt Consolidation Lender for Great Credit

LightStream

You can find yourself debt-free after saving a fortune on fees with debt consolidation from LightStream.

APR
5.95%–19.99%
Terms
3–5 years
Loan Amount
$5K–$40K
SimpleScore
4.8 / 5.0
close
SimpleScore
LightStream
4.8
  • Rates
    5
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    5
  • Fees
    5
You will need great credit if you plan to work with LightStream for a low-interest consolidation loan. The website indicates that you need a minimum credit score of 660 and a pretty spotless payment history. If you can meet those requirements, you could be rewarded handsomely.
Full review

Our Two Cents — LightStream gives you some of the best APRs for your debt consolidation, but the qualification process is far from a walk in the park.

Avant – Best Debt Consolidation Lender for Average Credit

Avant

Most borrowers will find Avant refreshingly approachable with reasonable requirements for the average credit.

APR
9.95%–35.99%
Terms
2–5 years
Loan Amount
$2K–$35K
SimpleScore
3.2 / 5.0
close
SimpleScore
Avant
3.2
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    2
  • Support
    4
  • Fees
    3
Avant won’t make payments to your creditors for you, but it will work with your credit more than other lenders. There is a minimum credit score of 580 for debt consolidation loans, which is the lender’s primary bread and butter. That means Avant knows debt consolidation well and can provide greater support than the average lender.
Full review

Our Two Cents — Here, you’ll need good enough credit to stand on your own, because Avant doesn’t allow joint debt consolidation loans.

Upstart – Best Credit Health Tools

Upstart

Upstart will help you rebuild your burgeoning credit using your job history or college degree.

APR
4.66%–35.99%
Terms
3–5 years
Loan Amount
$1K–$50K
SimpleScore
3.4 / 5.0
close
SimpleScore
Upstart
3.4
  • Rates
    2
  • Loan Size
    5
  • Customer Satisfaction
    4
  • Support
    3
  • Fees
    3
Upstart sits on the cusp of technology, using advanced machine learning to analyze your application for earning potential. It considers things like your job history and education instead of basing your approval entirely off your credit score. Just be prepared for the fees, because Upstart definitely doesn’t won’t give you a pass there.
Full review

Our Two Cents — When your credit is still new, Upstart will lend a helping hand and jumpstart your debt consolidation process with terms that are reasonable.

OneMain Financial – Best Debt Consolidation Lender for Poor Credit

OneMain Financial

When you’re struggling with poor credit, there are very few companies that are better equipped to help than OneMain Financial.

APR
18.00%–35.99%
Terms
2–5 years
Loan Amount
$1.5K–$20K
SimpleScore
3 / 5.0
close
SimpleScore
OneMain Financial
3
  • Rates
    2
  • Loan Size
    3
  • Customer Satisfaction
    N/A
  • Support
    5
  • Fees
    3
OneMain Financial has made a name for itself by offering loans to those with bad credit, but we also love the fantastic accessibility that it offers, as well. You have the option of applying online or via chat with a live loan specialist, or you can choose to visit one of the many nationwide brick and mortar branches for extra support one-on-one.
Full review

Our Two Cents — The fees may be high, but OneMain has your back when everyone else says no.

Best Egg – Best for High-Income Earners

Best Egg

Best Egg simplifies the process with an easy online quote process and an even faster approval process.

APR
5.99%–29.99%
Terms
3–5 years
Loan Amount
$2K–$34K
SimpleScore
3.75 / 5.0
close
SimpleScore
Best Egg
3.75
  • Rates
    4
  • Loan Size
    5
  • Customer Satisfaction
    N/A
  • Support
    3
  • Fees
    3
Best Egg is an all-around great choice for debt consolidation, simplifying the loan process so you can begin tackling your debt immediately. You only need average credit to take advantage of the better rates currently available, and Best Egg won’t pull your credit before giving you a quote. With 24-hour loan approval and 72-hour funding, it makes it pretty easy to handle debt consolidation. However, to secure the best rates with Best Egg, you’ll need to earn $100,000 a year.
Full review

Our Two Cents — This middle-of-the-road pick won’t charge you a dime if you pay off your loan in advance.

What is a debt consolidation loan?

It is all too easy to fall down the rabbit hole of debt. One debt becomes another and then another, and before you know it, you are so buried in debt that you don’t see the way out. When your debt grows wildly out of control, a debt consolidation loan can be a great solution to resolve your debt in one fell swoop. By taking out one big loan, you can pay off all of your existing debts and only have to worry about one loan going forward. A debt consolidation loan can also reduce the amount you pay each month and also shorten the total length of your financial obligations, so you get out of debt that much faster.

How debt consolidation loans work

When you have bad credit, you face far higher interest rates than if you have good credit. A debt consolidation loan is a personal loan that gives you a large sum upfront that you use to pay off your debt. From there, you only have to repay your loan for an easier, more convenient way to eliminate your debt. It can also restore your credit that much faster because there are not multiple debts being reported to the credit bureaus each month. Your new debt consolidation loan should offer a lower interest rate than those associated with your outstanding debt. Debt consolidation lenders use FICO scoring to approve or deny your loan, and while there are lenders who work with bad credit, you will have far more options available to you when you have excellent credit.

What you need before applying

Before applying for a debt consolidation loan, you should pull your credit report to see where you stand with your debts. Your report will also give you your credit score so you can decide which lenders are worth your time and which ones you shouldn’t even bother applying to. You also want to be sure that you are able to commit to the repayment terms with a steady source of income to make your payments on-time.

How to get a debt consolidation loan

Many lenders will allow you to prequalify using a soft credit check that won’t ding your credit. This will help you get a general idea of how much you can qualify for, as well as some of the other details regarding that particular lender’s loan. Every loan is different with its options; while many loans have terms of three to five years, you will find some lenders who offer shorter or longer terms. How much you can borrow will also depend on each lender, so if you are looking for a larger loan, you may not have as many options as if you were looking for a $5,000 loan. Fees are another area where lenders can vary; while some loans may carry steep origination fees or prepayment penalties, others may feature significantly lower fees or none altogether. The difference can amount to thousands of dollars over the life of your loan.

How to choose the best debt consolidation loan for you

  1. Prepare your finances. Before you apply for a debt consolidation loan, it’s a great idea to comb through your credit report. Repaying your smaller debts can improve your credit score and allow for a much lower interest rate on your loan. You should also take this time to resolve any late payments so you borrow as little as possible for your debt consolidation loan.
  2. Itemize your debts. Before you can apply for a loan, you need to figure out how money you actually need. Create a detailed list of all of your debts and calculate the total to calculate the total for your loan.
  3. Consider your lender. While banks are the most traditional type of lender for a debt consolidation, they are far from your only choice. There are also online-based lenders who can provide faster, more efficient service, and credit unions can use their not-for-profit state to cater to those who struggle with their credit.
  4. Shop your options. It is important to still shop your options, even if you find that you prefer one kind of lender over another. You may be surprised by the rates that you find. The difference of just a few points can make an enormous difference in how much the loan will cost you, and you can save a ton of money if you can find a lender with low or no fees.
  5. Apply for a loan. There are certain things you will need to provide when you apply for a loan. Be prepared to provide personal identification and information regarding your employment. You may also have the option to add a co-signer to your loan so you can qualify for better rates.

Alternatives to debt consolidation loans

A debt consolidation loan is not your only option. You can pay off your debts using a few different methods. These may take longer but will cost far less than the interest that would accompany an installment debt consolidation loan.

These are some popular alternatives to debt consolidation loans.

  1. Snowball method
    If you want to pay down your debt yourself, the snowball method is a great way to tackle your debt. This means that you begin working from the smallest debt to the biggest, slowly working your way through all of your bills until they are resolved.
  2. Avalanche method
    If you will sleep better knowing that your biggest debts are paid, you may want to use the avalanche method. This method involves paying off the loans with the most interest first, so you tackle the largest, fastest-growing debt before it balloons out of control.
  3. Reorganizing budget
    Sometimes, all it takes is a little organization. If you feel that your debt is manageable, you could benefit from reorganizing your budget. Changing the way that you spend your money and tackle your debt could be all the change you need to eliminate your debt and get back on track.

Debt consolidation loan FAQs

When is it a good idea to get a debt consolidation loan?

Be sure that you have exhausted all options before committing to repayment terms that will last several years. A debt consolidation loan is great to make your debt more manageable or if you want to save on interest from multiple loans. Just make sure that you have the credit score to qualify and that you can make the monthly payments.

When is it a bad idea to get a debt consolidation loan?

Debt consolidation isn’t a good match for everyone. If you have a very low credit score, you may not qualify for a loan at all. You will also need to prove that you have a regular source of income, or you could be denied.

Can I consolidate student loans?

Student loans are a popular reason to use a debt consolidation loan, and it uses a specific kind of loan called a Direct Consolidation Loan. You can use this loan to pay off a single or multiple student loans, while enjoying just one convenient monthly payment.

Too long, didn’t read?

A debt consolidation loan can be a great option if you have a lot of debt or if you are paying super-high interest rates on your existing loans. Your credit score will largely determine what kind of interest rate and loan terms you are offered, if you even qualify at all. Just remember to shop your options thoroughly and consider all of the terms in detail before committing to a long-term loan.

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Methodology

The SimpleScore is our proprietary scoring metric to compare products and services at The Simple Dollar in a transparent, evidence-based way. Our editorial team identifies five quantifiable aspects to compare for every brand, determines the rating criteria for each aspect score, then averages the five aspect scores to produce a single SimpleScore. For debt consolidation loans, we compared interest rates, loan amounts, customer satisfaction, support and fees for every major lender. Our ratings are meant to be a directional tool to help you in the process of choosing a debt consolidation loan provider. Be sure to continue your research and shop around for the best debt consolidation loan that fits your specific needs.

We welcome your feedback on this article and would love to hear about your experience with the debt consolidation loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.

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