Borrowers can combine several high-interest debts into a single payment with the use of debt consolidation loans. Compare the top debt consolidation loans for all credit ratings that we’ve selected.
The majority, if not all, of the products we offer here come from partners who pay us. This could affect the goods we write about, as well as where and how they appear on a page. However, this has little impact on how we evaluate things. We each have our own beliefs. Here is a list of our partners, along with information on how we get paid.
If you’re trying to pay off debt like many Americans do, you might be seeking for strategies to make it simpler, especially if you’re managing high-interest debt like credit cards. One solution to lower your debt and speed up your debt repayment is to take out debt consolidation loans.
Look for cheap interest rates, adaptable repayment options, and consumer-friendly features like direct payment to creditors when researching debt consolidation loans.
How to pick the best debt consolidation loan, according to NerdWallet
For the best personal loans for debt consolidation, NerdWallet examined over 35 financial institutions. The finest debt consolidation loans for you can be found by looking at our top recommendations above and reading the information below.
What is a loan for debt consolidation?
A debt consolidation loan combines many unsecured debts into a single fixed monthly payment, including credit cards, medical bills, and payday loans.
If the interest rate on the loan is less than the total interest rates on your existing debts, then getting a debt consolidation loan is typically a wise decision. With this lower rate, you’ll potentially pay off your loan more quickly and save money on interest.
How do loans for debt consolidation operate?
Debt consolidation loans are available from banks, credit unions, and online lenders. If you are approved, the lender will put the loan funds into your bank account, which you can then use to settle your debts. Some lenders save you the step by sending loan proceeds directly to your creditors.
You start making monthly payments on the debt consolidation loan as soon as your other debts are paid off. For the duration of the loan, which is normally two to seven years, the payments are fixed.
Loans for debt consolidation: the good and the bad
Before you apply for a loan, you should carefully consider the advantages and disadvantages of combining your debts, just as with any other financial decision. Here are the key advantages and disadvantages of debt consolidation loans to assist you in making a wise choice.
debt consolidation loans’ benefits
- You pay less interest: You can make your debt more manageable by obtaining a debt consolidation loan at a lower interest rate than your existing loans.
- You might pay off your debt more quickly if you save money on interest, which you can use to make higher loan payments. This will help you pay off your debt more quickly.
- You just have one payment: If you combine your debts under a consolidation loan, you’ll only have one monthly payment, as opposed to managing many credit card payments.
- You know exactly when you will be debt-free thanks to a debt consolidation loan, which can keep you motivated while you make payments.
The drawbacks of debt consolidation loans
- You could not be eligible for a rate that is low enough: Not all consolidation loans have low interest rates, and if you have poor credit, you might not be able to find one that’s less expensive than the interest on your existing bills.
- You still need to manage your debt: For many people, consolidating debt is a wise decision, but it’s vital to understand that the debt doesn’t go away; it only moves. Be ready to maintain your monthly payments for the two to seven years that the majority of debt consolidation loans have periods.
- Core spending problems won’t be resolved by consolidation: If you can’t keep to your monthly budget and are therefore in debt, a debt consolidation loan won’t help. If you use your newly unlocked credit cards to accrue more debt, it can even get worse.
» MORE: Pros and cons of debt consolidation
How to pick the ideal loan for debt consolidation?
Compare these elements when choosing between debt consolidation loans.
yearly percentage rates: The loan’s APR, which includes interest and any fees, reflects the loan’s actual yearly cost. Your credit rating, income, and debt-to-income ratio all affect the rates. APRs can be used to compare the expenses of various loans. Select a low rate with affordable monthly payments.
Origination fees: To offset the expense of processing your loan, some lenders impose origination fees. This one-time fee is either added to the loan balance or removed from your loan proceeds and normally ranges from 1% to 10% of the loan amount. If the cost is taken out of the money you borrow, you’ll need to ask for more money than the total of your debts in order to pay the fee and still have money left over to pay your creditors.
Unless the APR (which will include the origination fee) is still lower than loans with no origination fee, avoid loans that contain this fee to reduce costs.
Loan amounts and terms: The loan amounts for debt consolidation loans can range from $1,000 to $50,000, and the payback terms can range from two to seven years. Find a lender whose loan offering matches your requirements for paying off debt. For instance, depending on how much debt you have, only two repayment options are offered by some lenders, which may not be sufficient flexibility.
services offered by the lender: Some lenders provide consumer-friendly services like direct payment to creditors, which means that after your loan closes, the lender pays off your previous debts on your behalf.
Free credit score monitoring and hardship programs that temporarily lower or halt monthly payments if you have a financial setback, such as a job loss, are other benefits to look for.
How to obtain a loan for debt consolidation
1. Compile current debts and determine the total interest rate.
Having a comprehensive understanding of your current debt is the first step in obtaining a loan for debt consolidation. You may view your entire balance, total monthly payment, and overall interest rate with NerdWallet’s debt consolidation calculator.
The total amount of your debt and your combined interest rate are the two numbers you should keep in mind going forward since they will determine the loan amount you need to apply for and the interest rate you want on your consolidation loan, respectively.
2. Pre-qualify and evaluate available loans.
Pre-qualifying with several lenders allows you to see your possible loan terms, including APR, without affecting your credit score, making it one of the best ways to compare loan offers. Pre-qualification is not always available from banks or credit unions, but it is with most internet lenders.
» MORE: Pre-qualify on NerdWallet for free
3. Make a loan consolidation application.
When you’ve chosen a lender, it’s time to submit an application for a loan.
The majority of loan applications need you to submit personal data online, including your Social Security number, address, and other contact information. Additionally, you can be requested to present identification, work, and income evidence.
4. Repay your debts
The most significant action is this: Use the money from the loan to settle your bills. You will need to submit account information about your current debts and monitor the accounts to ensure they are paid off because some lenders pay the money to your creditors on your behalf.
If a lender does not provide direct payment, they will deposit the money into the account of your choice or, if you prefer, send you a check by mail. It will be up to you to make sure that each loan receives the appropriate amount.
Best Debt Consolidation Loans of May 2023, according to NerdWallet
- Upgrade: Best for Best overall
- SoFi: Best for No fees
- LightStream: Best for Low rates
- Achieve Personal Loans: Best for Rate discounts
- Happy Money: Best for Paying off credit card debt
- Best Egg: Best for Secured loan option
- Universal Credit: Best for Bad credit
- LendingClub: Best for Joint loan option
- Discover® Personal Loans: Best for Fast funding