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.
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
|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
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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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 firstname.lastname@example.org with comments or questions.