Between credit cards, retail card balances and even medical bills, it can be a challenge to keep up with multiple streams of debt. A personal loan for debt consolidation can make it easier to manage your monthly payments and stay on top of your finances. You might even qualify for a lower interest rate that proves easier on your wallet, even with a high loan amount.
Ready to get started? Follow this guide to find the best personal loans for debt consolidation.
The Best Personal Loans for Debt Consolidation
Personal loans allow you to consolidate all your debt into a single monthly payment. This can help you keep better track of your finances and give you an accurate picture of your future expenses. And there’s always the possibility of securing a personal loan at a lower interest rate than what you’re currently paying. In this case, you could save hundreds of dollars and pay off your debt faster. Many personal loans allow you to choose the timeframe on your loan. Most have a limit of 5 years. A longer loan term can help lower your monthly payments with just one origination fee, but you will end up paying more in interest.
Either way, many people are successful in lowering their monthly payments and getting out of debt with a personal loan. There’s also the added bonus of improving your credit score without taking out a home equity loan or otherwise leveraging your current assets. If you make all your monthly payments on time, your score will get a boost.
You’ll never know what kind of rates you’ll qualify for until you reach out to lenders. It’s a good idea to talk to several lenders and shop around for different rates before you agree to take out a personal loan. Take a look at our picks for the best personal loans for debt consolidation.
Best for Credit Card Consolidation: Payoff
The Payoff Loan program from Happy Money is designed to help pay off credit card debt, which is often the first big hurdle for those who wish to reduce their overall debt. Competitive rates and flexible loan terms make it simpler for you to get the loan you’re looking for, and you will have extra money left over that you can use for other purposes.
Think of this as a personal loan that frees up your budget instead of giving you quick cash, allowing you to make much better financial decisions in the future.
- Competitive rates will help you save money over time if you cannot pay off the loan quickly while still reducing your credit card debt
- Rates can get below 12%
- Loan values rise up to $40,000
- While loan terms and rates can be flexible, you may find it difficult to customize the loan to meet extremely specific needs
Best for Joint Loans: Prosper
Prosper’s personal loans are simple to manage and allow you to choose how much you need, how to use that money, check your rate and get the info you want without impacting your credit. Choose from 3 or 5-year terms depending on how much you think you can pay every month, but remember that there is no prepayment fee, allowing you to pay off the loan whenever you prefer.
You can consolidate debt with these loans and gain some money back in your monthly budget. Plus, rates can get as low as 6.99%, meaning that you’re not putting all your money into interest payments.
- Taking out a loan like this allows you to snowball payments on other debts
- Loan values as low as $2,000 allow you to take out what amounts to a short-term loan for an emergency, if needed
- Funds generally come in in 1 business day
- You may need to adjust your loan options to meet your monthly payment needs
Best for Consolidating Debt: Upstart
Upstart is focused on information and education, providing you with a full page of content that will help you learn more about their offerings and how these loans work. No minimum credit score is required, helping those who are trying to get out from under quite a bit of debt. Because this can act as a one-stop debt management plan, you can try one of several values and terms, along with:
- No prepayment penalties
- Soft credit checks
- Flexible repayment options
- Low fixed rates
- Options for personal loans or auto refinancing
Loans can get as high as $50,000, but please remember that your credit will impact how much you can borrow. So, someone with a lower credit score will not be able to borrow as much. Although, you can simply return to the platform over time to get more loans that will further your debt consolidation efforts.
- Over 80% of all loans are fully automated
- Almost all funds will be sent the next business day, so users should look at their schedule and how that would occur
- While Upstart offers several pages of content on differing types of personal loans, remember that you are not bound to just those purposes when taking out a loan
Best for Home Improvement Loans: Upgrade
Upgrade prefers to mix quick approval with extra information and a simple application. However, this platform doesn’t lend to you—it connects you with the lenders that can help you. As you look through the lenders with whom you’ve been connected, you can decide which spot is the best place to consolidate your debt, all with more affordable rates.
You can borrow for any purpose, and you can delve into each lending partner thoroughly before making a final decision. This also means that you don’t need to involve your home loan while engaging in a new debt management strategy. If you need additional support, however, you can always reach back out to Upgrade for help.
- You let the platform know you are planning to consolidate debt, allowing it to give you the best loan offers
- You can even customize your loans to match up a with a payoff date that you can plan for
- The wide range of loan options may make it difficult to decide what you want to do, especially because you may not prefer the lender from which you receive an offer
Best for Emergency Loans: Avant
When you reach out to Avant, you will find that they specialize in emergency loans, but it’s also interesting to note that the platform will loan for any purposes, meaning that you can turn a debt emergency into a solution. You can choose from debt relief plans that require no collateral, borrow up to $35,000 and choose from several loan types that will match up with your needs.
You can manage the loan from their mobile app, set up autopay (or adjust it) at any time and secure a fixed payment amount that you can rely on—which is often much lower than your combined debts.
- Up to 60-month terms
- Use the online eligibility calculator so that you can get a better idea of the type of loan you can obtain
- If you happen to make a late payment, the late fees can vary depending on the product you’ve chosen
Types of Personal Loans for Debt Consolidation
Most personal loans are unsecured, fixed-rate loans. Although different lenders may offer you different kinds of loans depending on your financial situation and credit report. It’s a good idea to understand the different kinds of loans available, especially because one might work well for a home improvement project while another will help you appease a debt collector. Take a look at some features of the most common types of loans.
A secured loan is a personal loan that is guaranteed by collateral. Collateral is any asset you own that has significant value, including your home, car, jewelry, antiques, an investment portfolio or even art. It’s important that you are the owner of the asset and that its value is large enough to cover the amount you’re borrowing. This means that you can shore up a lack of creditworthiness in some cases, but remember that your repayment plan is supported by something you could lose if you default.
Secured loans are common options for people that have no credit history or low credit scores. However, they can become dangerous if you are unable to fulfill the terms of the loan.
For example, many people use their homes as collateral in order to acquire secured loan funds, meaning that their payment amount compounds their current mortgage payment. If they are unable to pay back the money, the lender has the right to seize ownership of the property unless you can somehow make that loan payment. You could end up struggling with this issue every month, and the loan balance will be difficult to lower because of the potential for high interest rates.
Unsecured loans don’t require any collateral in exchange for the loan amount. Lenders will determine whether you are eligible based on your financial criteria such as your credit score and income level.
If your credit score is less than good or if you have a large amount of debt, you may have a difficult time getting approved. On the other hand, the higher your credit score and the healthier your finances are, the more likely you are to be approved on favorable terms.
Interest rates on fixed-rate loans are the same throughout the entire duration of the loan. Unlike variable-rate loans or adjustable-rate loans, you won’t have to worry about your rate going up.
Most auto loans, student loans and mortgages are fixed-rate loans. Fixed-rate loans give you a good understanding of how much your future payments will be. Unlike variable-rate loans, whose interest rates can change over time.
Fixed-rate loans are great if you lock in your loan for a low-interest rate. If interest rates go down over time, you may decide to refinance your loan at a lower rate. Most personal loans have timeframes that range from a few months to a few years. You are less likely to have to refinance your personal loan than you if you were taking out education loans or a mortgage.
Personal Loan Requirements and Criteria
Personal loans for debt consolidation work best if you are struggling with credit card debt, medical bills, retail credit cards, payday loans or other personal loans. The interest rate, time frame and other terms you receive will depend on your personal financial information. Your credit report is a major influence on the type of loan you will be offered.
If you have fair or poor credit, you’ll have to accept higher interest-rates than someone who has good or excellent credit. If your credit is poor or if you have no credit history, it’s possible to be denied altogether. If this happens, don’t be discouraged and keep trying out different lenders. It might also be a good idea to look into credit builder loans.
While your credit score is important, it’s not the only factor that influences your ability to qualify for a personal loan. There are other components lenders look into to understand your overall financial health. Your chances of getting approved and receiving more favorable terms are better if you’re doing well in 1 of the following areas:
- Steady income
- Debt-to-income ratio
- Payment history
- U.S. citizen or legal resident
- Minimum age (usually 18 but varies in different states)
Personal Loan Considerations
Although personal loans can be a great way to consolidate your debt, they are not for everyone. Most personal loans cap out a couple of tens of thousands of dollars at the most. If you have a high amount of debt or owe more money than you can reasonably pay back, you might not qualify for a personal loan and should look into other options like bankruptcy.
It’s important to verify that your creditors will allow you to consolidate your debt with a personal loan. Some creditors may not allow you to use a personal loan to pay off your debt. Some might even charge you penalties for paying off your debt early. There’s also no guarantee that your monthly payments will be lower. It’s best to consult with your creditors and shop around for different lenders to understand what your options are.
Whatever you do, don’t resort to predatory loans. Predatory loans may seem like an easy way to get cash fast, especially if you don’t have the best credit.
These loans exploit borrowers with unfair or abusive terms. In some cases, lenders may try to coerce, force or hide important information from you. You could face high-interest rates, excessive fees and potentially damage your credit score.
Personal Loans vs. Credit Cards
Some people might opt for a balance transfer credit card instead of a personal loan. These credit cards can have intro 0% APY offers for up to several months to a couple of years. These cards can be a viable option for debt consolidation but only if you can pay off the balance in full and by the time the promotional period ends.
Once the 0% APY period is over, you’ll be paying higher interest on a credit card than you would on a personal loan. You’ll also need to make sure you don’t rack up additional charges on your credit card balance.
Doing this would make it more difficult to pay off the money you owe. Unlike credit cards, personal loans have the added benefit of fixed-payments, so you’ll always know what your future payments are going to be.
Borrow Money for Debt Consolidation
Taking out a personal loan can be a great way to consolidate debt. However, personal loans are not necessarily an easy fix. You’ll still need to work hard to make your payments on-time and curtail unnecessary spending.
Remember that a personal loan for debt consolidation is only the 1st step. It’s up to you to make long-lasting financial changes.
Frequently Asked Questions
Should you consolidate debt or use a service?
You can consolidate debt on your own, using personal loans, or you can use a service. Keep in mind, however, a service manages the process while you have control of a personal loan.
Are debt consolidation loans easy to get?
You can use any type of personal loan to consolidate debt, and you should review the loans that give you the best options for your situation. The easiest personal loan to get usually aligns with your needs.
Is debt consolidation right for everyone?
Not everyone will benefit from debt consolidation loans, but it is wise to consider your options before planning to pay off or write off your debts.