The average adult with a credit card carries $5,839 in credit card debt, according to CreditCards.com data. Further, 38% of U.S. households carry revolving debt each month because they aren’t able or willing to pay off their balances. If you’re in debt, these figures probably don’t surprise you, and they may even seem small. But even relatively small amounts of debt can impact your life and make getting ahead financially significantly harder than it should be.
Fortunately, debt consolidation loans make it possible to craft a plan that might get you out of debt faster and with lower costs. With a debt consolidation loan, you may be able to combine several high-interest debts into a new loan with a lower interest rate and better terms. With less of your payments going toward interest each month, you can pay down debt faster and save money in the process.
Whether you have good or bad credit, there could be a debt consolidation loan option for you. We wrote this guide to introduce you to the best debt consolidation loan companies and what they have to offer. Keep reading to learn more about debt consolidation loans and how they stack up.
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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, start with the section titled “What is Debt Consolidation?” If you already know debt consolidation is the right path for you, scroll down for the section on whether debt consolidation is the right path for you.
What Is Debt Consolidation?
Think about all the debts and credit card balances you currently have. What if you could lump them together into a new fixed-rate loan, and pay it off with one single monthly bill? Simply put, that’s what debt consolidation is.
Debt consolidation rolls high-interest debt — like credit card balances, personal loans, and medical bills — into a single, lower-interest loan with one monthly payment. It’s a way for consumers to simplify their debt obligations and reorganize multiple bills with different interest rates, payments, or due dates.
So how do you get started? There are a number of ways to go about consolidating debt, including making a balance transfer to a zero- or low-interest credit card, applying for a home equity loan, or taking out a debt consolidation loan.
Pros of Debt Consolidation Loans
- Short-term relief: A single low-interest rate loan, 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. And, in fact, credit scoring models tend to view installment loans more favorably than revolving credit card balances.
Cons of Debt Consolidation Loans
- Long-term pain: Your lower monthly payment is usually the result of a longer payment term, not just a lower interest rate. This means you’ll spend more time paying it off.
- Big risks, depending on your new loan: Secured loans are backed by collateral you could end up forfeiting if you default. Unsecured loans will impact your credit score if you default.
- 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, and a new loan won’t fix that.
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’ll 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.
What Kinds of Debt Consolidation Loans Are There?
Secured consolidation 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 qualify for a secured loan since there’s 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 consolidation 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?
- Your best bet for a secured consolidation loan will be a brick-and-mortar lender.
- You can apply for personal loans online as well as banks and credit unions.
- You can also roll your debt onto a low-introductory-rate credit card.
- Be wary of the difference between debt consolidation and debt management.
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 we’ll review below. 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 debt consolidation 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.
Check Your Personal Loan Rates
Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.
But first, here’s a preview of the best debt consolidation loans revealed by my research:
The Best Debt Consolidation Loan Companies for 2019
- Best for Good Credit and Loans Up to $40,000: LendingClub
- Best for Connecting You With Lenders: PersonalLoans.com
- Best for Fast Funding: Avant
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 for Good Credit and High-Dollar Loans: LendingClub
- Available in all states except Iowa.
- Funds loans up to $40,000.
- Rates as low as 6.95%.
- 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.
LendingClub is the nation’s largest peer-to-peer lender, but that’s not the only reason it’s at the top of our list. APRs on LendingClub personal loans can range from 6.95% to 35.89% with amounts up to $40,000. All of this information as well as a clear description of the streamlined lending process can easily be found on their clean, transparent site experience.
LendingClub also requires a minimum credit score of 600 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. LendingClub also charges a $7 check-processing fee every time you pay with a check.
Disclaimer: All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage and history. The APR ranges from 6.95% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. *The origination fee ranges from 1% to 6%; the average origination fee is 5.2% (as of 12/5/18 YTD).* There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
Best for Connecting You to Lenders: PersonalLoans.com
- Available in all 50 states.
- Funds loans up to $35,000.
- Competitive interest rates.
- Well designed, informative website.
- Website is only a referral service.
- You might have to wait to learn full details about APR or fees attached to loan.
PersonalLoans.com] can help connect you with lenders in all 50 states. APRs range from 5.99% to 35.99% 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.
Best for Fast Funding: Avant
- Available in all 50 states.
- Borrow from $2,000 to $35,000*.
- Funds available in as little as the next business day.
- BBB accredited with A+ rating.
- Higher advertised APRs (9.95% to 35.99%).
- $25 late payment fee.
Avant focuses on offering access to loans to borrowers with slightly lower credit scores than LendingClub. Avant is not a peer-to-peer lender and offers access to loans through its lending platform. That can be an advantage for borrowers who need cash more quickly because through the Avant platform, you could have your funds as soon as the next business 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.
* The actual loan amount, term, and APR amount of loan that a customer qualifies for may vary based on credit determination and state law. Minimum loan amounts vary by state.
Avant branded credit products are issued by WebBank, member FDIC.
- Borrow from $1,000 to $50,000.
- Rates range from 7.98% to 35.99% APR.
- Focuses on younger buyers with shorter credit history.
Upstart is a relatively new peer-to-peer lender that focuses on younger buyers who might have trouble getting loans due to shorter credit history. As a result, they factor in elements such as a borrower’s alma mater, job history, major, GPA, and even test scores when determining the APR. The only loan terms offered are three-year and five-year.
- Borrow from $1,500 to $30,000.
- Rates from 16.05% to 35.99% APR.
- A solid option if your credit isn’t great.
OneMain is a solid option for borrowers who may not have the best credit. Though you can apply online, the company has nearly 1,600 branches around the country for those who want to do business in person. Secured loans may be an option at OneMain, too.
The company has an A+ rating and is accredited with the BBB. OneMain is only an option in 44 states, however. The company’s website also offers some nice educational information about loans.
- Borrow from $5,000 to $100,000.
- Rates from 6.14% to 14.24% APR (with AutoPay*).
- Requirements are a little steep.
While LightStream offers debt-consolidation loans from $5,000 to $100,000 at APRs ranging from 6.14% to 14.24% with AutoPay, there is a catch. You’ll need excellent credit, proof of significant income, and substantial assets to qualify. On the plus side, however, LightStream does offer flexible terms from 24 to 84 months and there are no fees.
* Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. If your application is approved, your credit profile will determine whether your loan will be unsecured or secured. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Rates as of 12/15/18.
- Borrow from $2,000 to $40,000.
- Rates from 5.99% to 35.99% APR.
- There are fees to consider, including origination and late payments.
Prosper, though it requires a minimum credit score of 640, offers unsecured personal loans from $2,000 to $40,000 and competitive APRs from 5.99% to 35.99%.
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).
Best Debt Consolidation Loans: Summed Up
|Loan Companies||Best For…|
|1||LendingClub||Borrowing up to $40,000|
|2||PersonalLoans.com||Connecting you with lenders|
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 “best of” consolidation loan picks:
- Wide range of loan amounts: Some online lenders will cap their consolidation 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 consolidation loan providers 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, LendingClub, 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.
Debt Consolidation Loans for Bad Credit
If you’re working with a credit score that falls into the “fair” or even “poor” credit territory, debt consolidation loans may still be an option. Just know that the interest rate will very high — around 30% — which can ultimately defeat the main purpose of a debt consolidation loan.
Alternatives to Debt Consolidation
If debt consolidation loans don’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.
- A line of credit that pays your credit card balances automatically.
- Rates from 7.9% to 19.9% APR (see more information below).
- No fees.
With Tally you can use the app to scan your credit cards and, if you qualify (you’ll need at least a 660 credit score), Tally will pay off your individual cards for you to minimize your interest charges. That leaves you with just one bill to pay each month (to Tally), and ensures you don’t miss a payment or incur late fees.
Unlike most consolidation loans, there are no fees to worry about with Tally, and the interest you pay on your line of credit should be lower than what your cards are charging you, helping you get out of debt faster. Depending on your credit history, your APR will work out to between 7.9% and 19.9%. Similar to credit card APRs, it will vary with the Prime Rate. (This information is accurate as of December 2018).
However, with APRs that hit the double digits, a 0% APR balance transfer card may still be a better consolidation option for borrowers with good credit (though it’s worth noting the 0% on transfer cards is nullified by late or missed payments). Tally is currently available in Arkansas, California, Colorado, Connecticut, Florida, Illinois, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Texas, Utah, Washington, and Wisconsin.
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.
Can I consolidate my student loan debt?
Absolutely! You have two options when it comes to consolidating student loan debt:
- Federal consolidation loans
- Private consolidation loans
Both options allow borrowers to combine their existing loans into a single loan with a fixed interest rate. But aside from that, there are a few differences:
|Federal vs. Private Consolidation Loans|
|Qualifying Loans||Federal||Federal, Private|
|Consolidation Type||Unsecured||Unsecured, Secured|
|Types of Interest||Fixed||Fixed, Variable|
|Terms||10 – 30 years||5 – 20 years|
Federal consolidation loans
Federal consolidation loans are ideal for anyone looking to combine different federal student loan debts. Unfortunately, federal consolidation only applies to federal student loans — private loans are excluded.
Federal loans must be in a grace period or repayment to qualify for federal consolidation. If your loans qualify, you’ll be eligible for a federal direct consolidation loan. Interest rates are fixed, and debt forgiveness is available (under certain conditions).
Private consolidation loans
Private consolidation loans offer more variety than federal, but also come at higher risk. All loan types qualify, but you’ll need a good to average credit score to be considered.
You’ll also have the ability to choose between secured and unsecured consolidation loans. Again, choosing a secured loan means lower APRs, but at the risk of losing your collateral if you default.
Private loans also offer both fixed and variable interest rates. To figure out the interest rate that’s best for you, look at the current “rate environment”. If rates are currently low, but projected to go higher, fixed-rate may work better. You’ll be able to lock in your current rate, without seeing an increase.
If rates are projected to go down, a variable rate can help you pay less interest in the future. But if rates go back up, there’s also a chance you may pay more.
For more information, check out our guide to student loan consolidation.
Can I consolidate my medical debt?
If you’re experiencing a medical emergency, finances are probably the last thing on your mind. But if you’re uninsured, or even if you’re insured and unable to meet your deductible, medical debt can haunt you.
It’s possible to consolidate medical debt, either through a consolidation loan or debt management solution. But medical debt does not operate like other forms of debt, and consolidation most likely means you’ll start paying interest.
Before you consider consolidation, you can take a few steps for free:
- Make sure your bill is accurate
- Ask for financial aid, charity care, or discount options
- Negotiate your bill (or have a trusted friend or family member do so)
Medical debt doesn’t usually come with interest, though that ultimately depends on your doctor or hospital. Practitioners rarely report payment information to the three major credit bureaus (Experian, Equifax, TransUnion).
If you choose to consolidate medical debt, you’ll likely convert debt with no interest into debt with interest. Depending on your lender, consolidation loans can either be unsecured or secured. Unsecured loans mean higher interest rates, while secured loans mean you’ll risk losing collateral if you default.
Taking out a consolidation loan typically doesn’t make as much sense if you’re still making payments to your hospital or doctor. Again, most practitioners will work with you, and many won’t report your debt to credit monitoring agencies.
But if you’ve fallen behind on your payments, some practitioners may pass your debt onto third-party collection agencies. If you’re still unable to pay, you may want to consider a debt consolidation loan or a debt management solution.
Can I refinance my consolidation loan?
Borrowers tend to refinance consolidation loans for one of two reasons: They’re having difficulty repaying their consolidation loan, or they’re seeking more favorable terms.
You can refinance a consolidation loan, as you might refinance a mortgage or a car loan, but the process will differ according to your need.
Before you begin, you should know your credit score, how much debt you still owe to your original lender, and monthly income information.
Never use refinancing as an excuse to take on more debt.
If you’re having difficulty repaying your consolidation loan
If your employment situation or monthly income has changed, it may become more difficult to repay your original consolidation loan. The best thing to do is to reach out to your original lender right away.
Many lenders will try to work with you. You may be able to request smaller monthly payments. This will extend the life of your loan, and cost more in interest over the long run. But it will make monthly payments more affordable.
If you’re seeking more favorable consolidation loan terms
Consolidating debts can result in a bump in your credit score. When you consolidate your loans, you’re not just lumping all of your debt together. You’re actively paying off your existing debts. Many credit bureaus register that as a positive step.
If you’ve been paying down your consolidation loan, or interest rates have gone down, you may be able to gain more favorable rates. Be sure to contact your lender to see if you can refinance with a lower interest rate, or shop around to find another lender with lower rates.
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.
The Bottom Line
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 or use our loan search tool below to view additional loan options. Good luck!
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Simply enter the purpose of the loan, the amount you need, your estimated credit score, and the state you reside in to instantly view loan companies available to accept your application online right now.