Best Debt Consolidation Loans of June 2024 - NerdWallet (2024)

A closer look at the best debt consolidation loans

NerdWallet has reviewed more than 35 financial institutions to find the best personal loans for consolidating debt. These are our top picks.

Upgrade: Best for debt consolidation loans overall

Why it made our list: Upgrade is a standout debt consolidation lender that offers direct payment to creditors and multiple rate discounts, which lower the amount of interest you pay on your loan.

Loan amounts: $1,000 to $50,000.Minimum credit score: 560.Repayment terms: 3 to 5 years. 7 years on some larger loans.

SoFi: Best for debt consolidation loans for good credit

Why it made our list: SoFi’s debt consolidation loans come with a wide range of amounts and terms, multiple rate discounts and same-day funding.

Loan amounts: $5,000 to $100,000.Minimum credit score: None.Repayment terms: 2 to 7 years.

Happy Money: Best for credit card consolidation loans

Why it made our list: Happy Money specializes in credit card consolidation, rolling multiple credit card debts into one monthly payment. It also pays off your creditors for you, saving you that step.

Loan amounts: $5,000 to $40,000.Minimum credit score: 640.Repayment terms: 2 to 5 years.

LightStream: Best for debt consolidation loans with low rates

Why it made our list: LightStream’s combination of lower overall rates, no fees and a discount for setting up autopay makes it a particularly affordable option.

Loan amounts: $5,000 to $100,000.Minimum credit score: 660.Repayment terms: 2 to 12 years depending on the loan purpose.

Universal Credit: Best for bad-credit debt consolidation loans

Why it made our list: Universal Credit offers debt consolidation loans with direct payment to creditors, multiple rate discounts and fast funding. Borrowers with bad credit can apply.

Loan amounts: $1,000 to $50,000.Minimum credit score: 560.Repayment terms: 3 or 5 years.

Best Egg: Best for secured debt consolidation loans

Why it made our list: Best Egg borrowers can apply for a secured loan to consolidate their debts, using their home’s fixtures or a vehicle as collateral. Best Egg also pays off your creditors for you.

Loan amounts: $2,000 to $50,000.Minimum credit score: 600.Repayment terms: 3 to 5 years.

Discover: Best for debt consolidation loans with fast funding

Why it made our list: Discover’s debt consolidation loans help borrowers move quickly on their debts. If you’re approved, Discover can send the loan funds directly to your creditors in one business day.

Loan amounts: $2,500 to $40,000.Minimum credit score: 660.Repayment terms: 3 to 7 years.

Achieve: Best for debt consolidation loans with rate discounts

Why it made our list: Achieve offers three ways to get a rate discount on its debt consolidation loan, including a direct pay discount if borrowers opt to have the loan funds sent directly to their creditors.

Loan amounts: $5,000 to $50,000.Minimum credit score: 620.Repayment terms: 2 to 5 years.

LendingClub: Best for joint debt consolidation loans

Why it made our list: LendingClub offers joint debt consolidation loans, meaning you can add a co-borrower to your application to help you qualify for a larger loan amount or a lower interest rate.

Loan amounts: $1,000 to $40,000.Minimum credit score: 600.Repayment terms: 2 to 5 years.

PNC: Best for bank debt consolidation loans

Why it made our list: PNC offers debt consolidation loans to good- and excellent-credit borrowers, and you don’t need to be a customer to apply. Existing customers receive the most perks, though, including a rate discount and faster funding.

Loan amounts: $1,000 to $35,000.Minimum credit score: None.Repayment terms: 6 months to 5 years.

NerdWallet’s guide to debt consolidation loans

Learn how debt consolidation loans work, the pros and cons of consolidating your debt and how to get approved for a debt consolidation loan.

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What is a debt consolidation loan?

A debt consolidation loan combines multiple unsecured debts — such as credit cards, medical bills and payday loans — into one fixed monthly payment.

As long as the interest rate on the debt consolidation loan is lower than the combined rates on your existing debts, you’ll save money on interest and potentially pay off your debt faster.

How do debt consolidation loans work?

Online lenders, banks and credit unions offer debt consolidation loans. If you qualify, the lender deposits the loan into your bank account, and you use that money to pay off your debts. Some lenders send loan proceeds directly to your creditors, saving you that step.

Once you pay off your other debts, you make monthly payments toward the debt consolidation loan. Payments are fixed for the life of the loan, typically two to seven years.

Are debt consolidation loans a good idea?

A debt consolidation loan is a good idea if you can get a lower annual percentage rate than what you're currently paying on your other debts. The best debt consolidation loan interest rates are reserved for borrowers with good or excellent credit (690 or higher credit score).

Like with all financial decisions, you should carefully weigh the pros and cons of consolidating your debts before you apply for a loan. Here are the main benefits and drawbacks of debt consolidation loans to help you make an informed decision.

Pros of debt consolidation loans

Cons of debt consolidation loans

Debt consolidation loan calculator

Use this personal loan calculator to get an idea of what your monthly payment would be with a debt consolidation loan, based on your desired loan amount, interest rate and repayment term. You can also see when you’ll be debt-free by looking at the payoff date.

How to compare debt consolidation loans

Look for an annual percentage rate lower than your existing debts: The loan's annual percentage rate, or APR, represents its true annual cost and includes interest and any fees. Rates vary based on your credit score, income and debt-to-income ratio. Use APRs to compare costs between multiple loans. Choose a low rate with monthly payments that fit your budget.

Avoid origination fees if you can: Some lenders charge origination fees to cover the cost of processing your loan. This one-time fee typically ranges from 1% to 10% of the loan amount and is deducted from your loan proceeds or added to the loan balance. If the fee is deducted from your loan proceeds, you’ll need to request more than the sum of your debts to cover the fee and still have enough to pay your creditors.

Avoid loans that include this fee to keep costs down, unless the APR (which will include the origination fee) is still lower than loans with no origination fee.

Check that the available loan amounts and terms match your debt: Debt consolidation loans come in a wide range of loan amounts ($1,000 to $50,000) and repayments terms (two to seven years). Look for a lender whose loan product meets your debt payoff needs. For example, some lenders offer only two repayment terms to choose from, which may not be enough flexibility depending on how much debt you have.

Look for special debt consolidation features: Some lenders offer consumer-friendly features like direct payment to creditors, which means the lender pays off your old debts once your loan closes, saving you that task.

Other features to shop for include free credit score monitoring and hardship programs that temporarily reduce or suspend monthly payments if you face a financial setback, such as a job loss.

Do debt consolidation loans hurt your credit?

Debt consolidation loans can help — and hurt — your credit score. When you use the loan to pay off your credit cards, you lower your credit utilization, which measures how much of your credit limit is tied up. Lowering your credit utilization can help your credit.

On the other hand, applying for a loan requires a hard credit check, which can temporarily ding your credit score. And if you turn around and rack up new credit card debt, your credit score will suffer.

Making late payments on your new loan can also hurt your credit score, while on-time payments can help.

Ultimately, if you use the debt consolidation loan to pay off your debts and then pay off the new loan on time, the overall effect on your credit should be positive.

How to qualify for a debt consolidation loan

Build your credit: Loan approval is based mainly on your credit score and ability to repay. It may be possible to get a debt consolidation loan with bad credit, but borrowers with good to excellent credit have more loan options and may qualify for lower rates.

If you have fair or bad credit (689 credit score or lower), it can pay to build your credit before seeking a consolidation loan.

Apply for a joint, co-signed or secured loan: Adding a co-borrower or co-signer to your application can help you qualify for a debt consolidation loan that you wouldn’t be able to on your own because of poor credit or low income. In a joint loan, both borrowers have equal access to the funds, unlike a co-signed loan, in which only the main applicant does. Co-borrowers and co-signers are on the hook for missed payments.

Some lenders may also offer a secured loan, which means you can back it with collateral, like your car or an investment account, to boost your chances of approval or get a better loan offer. But you risk losing the asset if you fail to repay the loan.

Consider different types of lenders: Compare offers from banks, credit unions and online lenders before choosing the best debt consolidation loan. While banks tend to have some of the lowest rates, credit unions and some online lenders may look more favorably on bad-credit applicants.

What to know about debt consolidation loans for bad credit

You can still get a debt consolidation loan if you have bad credit (a 629 credit score or lower).

Look specifically for lenders that let you pre-qualify with a soft credit check — that way you can check if you meet the lender’s requirements without taking a hit to your credit score. This will also help you check if the rate you qualify for is lower than your existing debts.

How to get a debt consolidation loan

1. Add up current debts and calculate the combined interest rate

The first step in getting a debt consolidation loan is having a clear picture of your current debt. You can use NerdWallet’s debt consolidation calculator to see your total balance, total monthly payment and combined interest rate across all debts.

You’ll want to keep two numbers in mind moving forward: Your total debt, because this is the loan amount you need to apply for, and your combined interest rate, because you’ll want a lower interest rate on your consolidation loan.

2. Pre-qualify and compare loan options

One of the best ways to compare loan offers is to pre-qualify with multiple lenders, which lets you see your potential loan terms, including APR, without any effect on your credit score. Though not all banks or credit unions offer pre-qualification, most online lenders do.

3. Apply for a debt consolidation loan

Most loan applications are online and ask you to supply personal information like your Social Security number, address and other contact details. You also may be asked to provide proof of identity, employment and income.

Once you’ve submitted your application, the lender will make an approval decision. If you’re approved, you’ll sign the loan agreement and receive the funds. Funding time varies among lenders, but some lenders can fund the same day you’re approved.

4. Pay off creditors

Here’s the most important step: Use the loan proceeds to pay off your existing debts. Some lenders send the funds to your creditors for you, so you’ll need to provide account information about your existing debts — and check the accounts to make sure they’re paid off.

If a lender doesn’t offer direct payment, they’ll deposit the funds in an account of your choosing or mail a check, if you prefer. It’ll be up to you to make sure the right amount goes to each debt.

5. Begin making payments on your new loan

Once your existing debts are paid, you’re left with your new loan. Personal loan payments are monthly, though there’s usually no fee for paying off a loan early. Make a plan now to manage your personal loan payments.

As you make progress on paying off your loan, try to keep your credit card balances at or near zero until you’re debt-free. But avoid closing the accounts, which can lower your credit score.

Alternatives to debt consolidation loans

A debt consolidation loan isn’t your only option for paying off debt.

0% balance transfer credit card: For borrowers with good to excellent credit, transferring debts to a 0% balance transfer card may be a good option — as long as you can pay it off during the introductory period, which can range from 15 to 21 months.

Credit counseling: Nonprofit organizations offer credit counseling, which includes helping you create a debt management plan. Similar to other consolidation products, these plans roll your debts into one manageable payment at a reduced interest rate.

Debt payoff strategies: If you’re not sure how to tackle debt, you may not need to consolidate. The debt snowball and debt avalanche methods are two common strategies for paying off debt. The snowball method focuses on paying off your smallest debt first, building momentum as you go. The avalanche focuses on paying off the debt with the highest interest rate first, then applying the savings elsewhere. Both can boost your payoff speed.

Debt relief: If you have significant debt (40% or more of your income) and no plan to pay it off, you may want to explore other strategies, like debt settlement or bankruptcy. Both of these options help eliminate unsecured debts, but they hurt your credit and are typically a last resort.

Last updated on May 28, 2024

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