Best Debt Consolidation Loans
Overview: Upgrade is a unique debt consolidation lender that reduces the amount of interest you pay on your loan by offering multiple rate discounts and direct payment to creditors. Borrowers who meet the minimum credit score requirement of 560 can apply for upgrade loans.
- Pros and cons of UpgradeProsConsMultiple rate discounts. Secured and joint loans. Mobile app to manage loan payments. Direct payment to creditors with debt consolidation loans. Long repayment terms on home improvement loans. Origination fee. No option to choose initial payment date.
SoFi: Best for no fees
Overview: There are no mandatory fees for SoFi’s debt consolidation loans, including no late fees. Borrowers with good or excellent credit (690 credit score or above) can apply for its loans, which also include special benefits like free financial counseling and unemployment protection.
- Pros and cons of SoFiProsConsJoint loan option. Multiple rate discounts. Hardship program for borrowers in need. Mobile app to manage loan. No option to choose initial payment date. High minimum loan amount.
Happy Money: Best for paying off credit card debt
Overview: Happy Money combines several credit card debts into a single monthly payment, specializing in credit card consolidation. Borrowers with a credit score of 640 or above are eligible for it, which saves you that step by paying off your creditors on your behalf.
- Happy Money’s benefits and drawbacks: Pros: Pre-qualification via a soft credit check; Cons: Offers direct payment to creditors. Fast funding. No late fee. Hardship program for borrowers in need. Origination fee. No rate discount. No co-sign or joint loan option. No option to choose initial payment date.
LightStream: Best for low rates
Overview: Borrowers with a minimum credit score of 660 are eligible for debt consolidation loans from LightStream. Its combination of no fees, reduced overall rates, and an autopay discount makes it an especially cost-effective choice.
- Pros and cons of LightStreamProsConsNo fees. Rate discount for autopay. Long repayment terms. Rate Beat program and Experience Guarantee. No option to pre-qualify on its website. No direct payment to creditors with debt consolidation loans. High minimum loan amount.
Universal Credit: Best for bad credit
Overview: Universal Credit provides quick funding, multiple rate discounts, direct payment to creditors, and debt consolidation loans. Because there is a minimum credit score requirement of 560, borrowers with poor credit can still apply.
- Universal Credit’s benefits and drawbacks:
Pros: Direct payment to creditors through debt consolidation loans Fast funding. Offers multiple rate discounts. Free credit score access. Origination fee. Two repayment term options.
Best Egg: Best for secured loan option
Overview: To consolidate debt, Best Egg borrowers can apply for a secured loan and use a car or fixtures from their home as collateral. Best Egg has a minimum credit score requirement of 600 and pays off your creditors on your behalf.
- Best Egg’s advantages and disadvantages: Pros: Pre-qualify with a soft credit check; Cons: Wide range of loan amounts. Secured loan options. Direct payment to creditors with debt consolidation loans. No late fees. Origination fee. No rate discounts. No option to choose initial payment date. No mobile app to manage loan.
Discover: Best for fast funding
Overview: Borrowers who wish to pay off their debts quickly should consider Discover’s debt consolidation loans. Within one business day of your application being accepted, Discover can send the loan money straight to your creditors. Borrowers need a minimum credit score of 660 to apply.
- Pros and cons of DiscoverProsConsNo origination fee. Option to pre-qualify with a soft credit check. Fast funding. Mobile app to manage loan. May charge late fee. No co-sign or joint loan option. No rate discount.
Achieve: Best for rate discounts
Overview: If borrowers choose to have the loan funds sent directly to their creditors, Achieve offers a direct pay discount. There are three ways to receive a rate discount on its debt consolidation loan. Achieve has a minimum credit score requirement of 620.
- Pros and cons of AchieveProsConsMultiple rate discounts. Direct payment to creditors with debt consolidation loans. Option to pre-qualify with a soft credit check. Joint loan option. Charges origination fee. No mobile app to manage loan. High minimum loan amount.
LendingClub: Best for joint loan option
Overview: LendingClub provides loans for joint debt consolidation, allowing you to include a co-borrower on your application to potentially increase your loan amount or lower your interest rate. LendingClub has a 600 minimum credit score requirement.
- Pros and cons of LendingClubProsConsJoint loan option. Direct payment to creditors with debt consolidation loans. Option to pre-qualify with a soft credit check. Option to change your payment date. Origination fee. No mobile app to manage loan.
PNC: Best for bank loans
Overview: PNC provides debt consolidation loans in all 50 states to borrowers with good to excellent credit; application submission is not required. However, the greatest benefits go to current clients, who may be eligible for a rate reduction and quicker funding.
- Pros and cons of PNCProsConsRate discount for autopay. Joint loan option. Direct payment to creditors with debt consolidation loans. Wide variety of repayment term options. Product varies by location. May require in-person visit. No large loan amounts.
What is a debt consolidation loan?
Credit card debt, medical expenses, payday loans, and other unsecured debts are all combined into one fixed monthly payment with a debt consolidation loan.
You’ll save money on interest and possibly pay off your debt sooner if the interest rate on the debt consolidation loan is lower than the total interest rates on your current debts.
How do debt consolidation loans work?
Online lenders, banks and credit unions offer debt consolidation loans. If you are approved, the lender will transfer the funds to your bank account, which you can use to settle your bills. Some lenders skip this step and send the loan proceeds straight to your creditors.
You make monthly payments toward the debt consolidation loan after you’ve settled your other debts. For the duration of the loan, usually two to seven years, payments are fixed.
Are debt consolidation loans a good idea?
If you can obtain a debt consolidation loan with an annual percentage rate that is less than what you are now paying on your other debts, it would be wise to take it. The borrowers with good or excellent credit (690 or higher credit score) are eligible for the best interest rates on debt consolidation loans.
Prior to applying for a loan, you should carefully consider the benefits and drawbacks of debt consolidation, just like you should with any financial decision. The primary advantages and disadvantages of debt consolidation loans are listed below to assist you in making an informed choice.
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Pros of debt consolidation |
Cons of debt consolidation |
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Pros of debt consolidation loans
- You pay less interest: You can make your debt more manageable by obtaining a debt consolidation loan at a lower interest rate than your current obligations.
- It is possible that you will be able to pay off debt more quickly if you use the money you save on interest to make larger loan payments.
- You only have to make one payment each month: If you consolidate your debts under a consolidation loan, you won’t have to worry about managing several credit card bills.
- You have a specific deadline for paying off your debt, which can help you stay motivated as you make the payments on a debt consolidation loan.
Cons of debt consolidation loans
- You might not be eligible for a low enough rate: Not all consolidation loans have low interest rates, and you might not be able to get a rate that is lower than your current debts if you have bad credit (a score of less than 630).
- You still have debt to pay off: While consolidating debt is often a wise decision, keep in mind that the debt actually moves somewhere else. The majority of debt consolidation loans have terms ranging from two to seven years, so be sure you can continue making your monthly payments during that time.
- Debt consolidation loans won’t resolve core spending problems: If your inability to maintain a monthly budget has left you in debt, consolidation won’t help. If you use your newly freed credit cards to accrue more debt, it might even get worse.
How to compare debt consolidation loans
The true annual cost of a loan is represented by its annual percentage rate (APR), which includes interest and any other fees. Rates change according to your income, debt-to-income ratio, and credit score. Use APRs to compare costs between multiple loans. Select a cheap rate and affordable monthly payments to suit your needs.
Avoid origination fees if you can
In order to defray the expense of processing your loan, some lenders impose origination fees. This one-time payment is usually deducted from your loan proceeds or added to the loan balance. It usually ranges from 1% to 10% of the loan amount. You will need to request more than the total amount of your debts in order to cover the fee and still have enough money to pay your creditors if the fee is taken out of the loan proceeds.
To keep costs down, steer clear of loans that include this fee unless the annual percentage rate (APR), which includes the origination fee, is still lower than loans that do not.
Check that the available loan amounts and terms match your debt
There is a large range of loan amounts ($1,000 to $50,000) and repayment terms (two to seven years) for debt consolidation loans. Find a lender whose loan offering satisfies your requirements for debt repayment. For instance, depending on how much debt you have, some lenders only offer two repayment terms, which may not be enough flexibility.
Look for special debt consolidation features
Certain lenders provide features that are advantageous to borrowers, such as direct payment to creditors, which relieves you of the burden of having to pay off your previous debts after your loan closes.
Free credit score monitoring and hardship programs that temporarily lower or stop monthly payments in the event of a financial setback, like losing your job, are additional features to look for.
Do debt consolidation loans hurt your credit?
Loans for debt consolidation can both improve and lower your credit score. Your credit utilization, which indicates how much of your credit limit is utilised, will decrease when you use the loan to pay off your credit cards. Lowering your credit utilization can help your credit.
However, a hard credit check is necessary when applying for a loan, which may momentarily lower your credit score. Additionally, your credit score will suffer if you go back and take on more credit card debt.
Your credit score may be impacted by making late payments on your new loan, but timely payments may also help.
In the end, your credit should improve overall if you use the debt consolidation loan to pay off your debts and then repay the new loan on schedule.
How to qualify for a debt consolidation loan
A loan’s approval is primarily determined by your credit score and repayment capacity. Although borrowers with good to excellent credit have more loan options and may qualify for lower rates, it may still be possible to get a debt consolidation loan with bad credit.
Before applying for a consolidation loan, it can be beneficial to establish your credit if you have fair or poor credit (689 credit score or below).
Apply for a joint, co-signed or secured loan
If you have bad credit or low income and are unable to obtain a debt consolidation loan on your own, you may be able to qualify with the help of a co-borrower or co-signer. Unlike co-signed loans, where only the primary applicant has access to the funds, joint loans give both borrowers equal access to them. Co-borrowers and co-signers are on the hook for missed payments.
Additionally, some lenders may provide secured loans, which allow you to increase your chances of approval or receive a better loan offer by backing the loan with collateral like your car or an investment account. But if you don’t pay back the loan, you run the risk of losing the asset.
Consider different types of lenders
Examine offers from online lenders, credit unions, and banks to determine which debt consolidation loan is best. Although banks typically offer the lowest rates, credit unions and certain online lenders might be more accepting of applicants with poor credit.
How to get a debt consolidation loan with bad credit
Even with poor credit (629 credit score or lower), you can still be eligible for a debt consolidation loan.
Seek out lenders who allow you to pre-qualify with a soft credit check so you can verify if you meet the requirements of the lender without having to worry about your credit score being negatively impacted. You can use this to see if the rate you qualify for is less than what you currently owe.
For borrowers with poor credit, certain online lenders offer debt consolidation loans exclusively. A good place to start if you’re unsure where to start is your local credit union.
How to get a debt consolidation loan
To apply for a debt consolidation loan, you must first have a comprehensive understanding of your current debt. The debt consolidation calculator on NerdWallet allows you to view your total debt balance, total monthly payment, and total interest rate.
Going forward, you should be aware of two numbers: your total debt, which is the loan amount you must apply for, and your combined interest rate, which is important to know because you want a lower interest rate on your consolidation loan.
Pre-qualify and compare loan options
Pre-qualifying with several lenders is one of the best ways to compare loan offers because it shows you your possible loan terms, including the annual percentage rate, without affecting your credit score. While not all credit unions or banks provide pre-qualification, the majority of online lenders do.
Apply for a debt consolidation loan
Now that you have selected a lender, it is time to submit a loan application.
The majority of loan applications are submitted online, requesting personal data from you including your address, Social Security number, and other contact information. You might also be required to present documentation of your identity, job, and income.
Following the submission of your application, the lender will decide whether to approve it. You will sign the loan agreement and get the money if you are approved. While each lender has a different funding period, some can fund on the same day that you are accepted.
Pay off creditors
The most crucial step is to pay off your current debts with the loan proceeds. Certain lenders will forward the money to your creditors on your behalf, so you’ll need to supply account details regarding your current debts and ensure that the accounts are settled.
If a lender does not offer direct payment, they will either mail you a check or deposit the money into the account of your choice. It will be your responsibility to ensure that each debt is paid off in full.
Begin making payments on your new loan
You have your new loan after you pay off your current debts. Monthly payments are required for personal loans, however early loan payoff is typically free of charge. Make a plan now to manage your personal loan payments.
Try to maintain your credit card balances at or close to zero as you pay off your loan until you have paid off all of your debt. To avoid having your credit score lowered, do not close the accounts.
Alternatives to debt consolidation loans
You have other options besides taking out a debt consolidation loan to pay off debt.
0% balance transfer credit card: For borrowers with good to excellent credit, transferring debt to a $200% balance transfer credit card may be a good option. The interest rate is E2%80%94 as long as you can pay it off within the introductory period, which can last from 2015 to 2021 months.
Credit counseling is provided by nonprofit organizations, and part of their services involves assisting you in developing a plan for managing your debt. These plans combine all of your debts into one affordable payment at a lower interest rate, just like other consolidation products.
Debt payoff tactics: You might not need to consolidate your debt if you don’t know how to handle it. The debt avalanche and snowball approaches are two popular methods for debt repayment. The goal of the snowball method is to pay off your lowest debt first and gain momentum along the way. The goal of the avalanche is to pay off the debt with the highest interest rate first, then use the money saved for other purposes. Both can boost your payoff speed.
How we chose the best debt consolidation loans
In order to identify the best debt consolidation loans, NerdWallet examined over 35 financial institutions and technology companies. We assessed these loans across five major categories, detailed below. See our methodology for personal loans to learn more about how we rate applications.
- Rating categories for personal loans: affordability: an affordable loan may be eligible for rate discounts and has lower fees and rates than other loans of a similar nature. Underwriting and Eligibility: Prior to making a final application decision, the lender examines the borrower’s credit reports and credit history in an effort to determine their ability to repay a loan. Flexibility of loan terms: A loan that allows borrowers to set their own terms and payments This entails providing a large selection of repayment term choices, letting the borrower modify the due date, granting loans in the majority of states, and funding the loan fast. Customer experience A fully online application process, financial education on the lender’s website, and a customer support team that is available most of the time and can be reached in a number of ways can all contribute to a positive customer experience. Transparency: A transparent lender makes all loan-related information, such as rates, terms, and loan amounts, easily accessible on its website. Additionally, being transparent entails letting consumers pre-qualify online to review possible loan offers and disclosing payment details to the main credit bureaus.
Through its review process, NerdWallet assesses and ranks personal loan offerings from over 35 financial institutions and tech firms. To verify product details, we gather more than 50 data points from each lender and cross-reference them with corporate websites, earnings reports, and other publicly available documents. We might also follow up with business representatives and go through the pre-qualification process of a lender. Every year, NerdWallet writers and editors perform a thorough fact check and update. In addition, they provide updates as needed throughout the year.
Lenders that provide customer-friendly features, such as soft credit checks for pre-qualification, competitive interest rates without any fees, transparent rates and terms, flexible payment options, quick funding times, reachable customer support, payment reporting to credit bureaus, and financial education, receive points from us based on our star ratings. The lenders who engage in practices that could make a loan difficult to repay on time are penalized less in our ratings. These practices include charging high annual percentage rates (above 2036%), underwriting that fails to adequately assess the consumers’ E2%80%99% ability to repay, and lack of credit-building assistance. Regulatory actions submitted by organizations such as the Consumer Financial Protection Bureau are also taken into account. We evaluate each of these factors to determine which matters most to customers and how much they influence their experiences.
NerdWallet does not receive compensation for our star ratings. Learn more about our editorial policies and personal loan rating methods.
NerdWallet’s Best Debt Consolidation Loans of February 2024
- What is the interest rate on loans for debt consolidation? Interest rates on debt consolidation loans differ depending on the lender. The annual percentage rate, which is the interest rate plus any costs associated with being a lender, can vary from 6% to 3%36. What interest rate you receive on a loan depends on a number of factors, including your income, debt-to-income ratio, and credit score.
Jackie covers personal loans for NerdWallet. She had a freelance writing and editing business before that. She graduated from Indiana University with a degree in journalism. Email: [email protected]. Read more about the author.
FAQ
Does a consolidation loan ruin your credit?
While debt consolidation can result in lower monthly payments, it may also temporarily lower your credit score.
What’s the average rate for a consolidation loan?
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Credit score
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Average APR for 2-to-5-year loans
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620-639
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28.19%
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580-619
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30.66%
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560-579
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35.02%
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560 or below
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35.13%
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Read More :
https://www.nerdwallet.com/best/loans/personal-loans/consolidation-loans
https://www.forbes.com/advisor/personal-loans/best-debt-consolidation-loans/