The Bankrate guide to choosing the best debt consolidation loans
Reviewed by
Mark Hamrick, Bankrate senior economic analystAs of Monday, June 21, 2021
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When shopping for the best debt consolidation loan, look for the lowest interest rate, a loan amount that meets your needs, an affordable and workable repayment term and low to no fees. Loan details presented here are current as of the publication date. Check the lenders’ websites for the latest information. The top lenders listed below are selected based on factors such as APR, loan amounts, fees, credit requirements and broad availability.
Best debt consolidation loan rates in June 2021
| Best Egg |
5.99%–29.99%
|
3–5 years
|
$2,000–$50,000
|
High-income earners with good credit
|
640
|
| Payoff |
5.99%–24.99%
|
2–5 years
|
$5,000–$40,000
|
Consolidating credit card debt
|
640
|
| LightStream |
5.95%–19.99% (with autopay)
|
2–7 years
|
$5,000–$100,000
|
High-dollar loans and longer repayment terms
|
Not disclosed
|
| PenFed |
Starting at 5.99%
|
6 months–5 years
|
$600–$35,000
|
Smaller loans with a credit union
|
Not disclosed
|
| OneMain Financial |
18%–35.99%
|
2–5 years
|
$1,500–$20,000
|
Fair to poor credit
|
Not disclosed
|
| Discover |
6.99%–24.99%
|
3–7 years
|
$2,500–$35,000
|
Good credit and next-day funding
|
660
|
| Upstart |
6.95%–35.99%
|
3 years or 5 years
|
$1,000–$50,000
|
Consumers with little credit history
|
600
|
| Marcus by Goldman Sachs |
6.99%–19.99% (with autopay)
|
3–6 years
|
$3,500–$40,000
|
Consolidating large debts
|
660
|
Summary: Debt consolidation loans in 2021
What is a debt consolidation loan and how does it work?
A debt consolidation loan is a type of personal loan that can help you combine several high-interest debts into one new loan, ideally one with a lower interest rate. You pay off multiple debts with a single loan that has one fixed monthly payment. When managed responsibly, a debt consolidation loan can help you save money on interest and get out of debt faster.
Learn more: How debt consolidation loans work.
With a debt consolidation loan, you apply to borrow the amount that you owe on your existing debts. Once approved for the loan, you receive the funds and use them to pay off your credit cards or other loans. In some cases, the funds can be sent directly to your creditors. From there, you begin making monthly payments on your new debt consolidation loan.
The most popular type of debt to consolidate is credit card debt because it typically has some of the highest interest rates. But you can also consolidate other debts, such as personal loans, payday loans and medical bills.
Benefits of a debt consolidation loan
Consolidating your debt can save you money. If you have several credit cards with double-digit interest rates and you qualify for a debt consolidation personal loan at a lower rate, you can save a heap of money in interest and, potentially, fees.
It also simplifies your finances. A debt consolidation loan combines multiple debts into one monthly payment with a fixed rate and a set repayment term, so your monthly payments stay the same and you know when the debt will be paid off. Credit card rates are variable, so your monthly payments differ depending on your balance, and it can be hard to know when your debts will be paid off.
Additionally, using a consolidation loan to pay off multiple debts, especially credit card accounts, can have a positive impact on your credit score. Credit scoring models, like FICO and VantageScore, place a lot of weight on your credit utilization ratio (how much of your available credit you have used). When a new consolidation loan lowers your credit utilization ratio, your credit score might climb as a result.
Of course, you’ll need to avoid making late payments or running up balances again on your recently paid-off credit card accounts. Otherwise, you could put your credit in a worse position.
How to qualify for a debt consolidation loan
Each lending institution has its own criteria for qualifying borrowers. Common requirements are that borrowers be at least 18 years old, legal residents of the U.S. and not in foreclosure or bankruptcy.
Most lenders look for a minimum credit score in the mid-600s and a debt-to-income (DTI) ratio below 45 percent. DTI is the percentage of your gross monthly income that goes toward your monthly debt payments. An excellent credit score and low DTI will get you the best interest rate and may qualify you for a larger loan.
Even if you have bad credit, you may find a lender that's willing to extend you a loan, but you'll pay higher interest rates. If you're in this scenario, you may want to apply with a co-signer who has good credit to improve your chances of being approved.
Having a good-credit co-signer improves your overall credit picture, but keep in mind that the co-signer shares responsibility for the loan if you fail to make payments.
Learn more: How to get a debt consolidation loan with bad credit
Will a debt consolidation loan hurt my credit score?
Applying for a debt consolidation loan may temporarily dent your credit score because the lender will have to do a hard credit check before it can approve you. However, if you make your monthly loan payments on time and don't rack up card balances again, a credit card consolidation loan can improve your credit score.
You can consolidate debt without hurting your credit. Personal loans for debt consolidation have several features that are less likely to damage your credit than revolving debt like credit cards. A personal loan is an installment loan with a fixed rate, fixed monthly payments and a fixed payoff date. This makes them easier to budget for and a cheaper form of credit than credit cards, which have variable interest rates, payments that change depending on the rate and balance and no clear payoff date.
The fact that many people take out installment loans to pay off their revolving loan balances says a lot about the potential credit benefits of debt consolidation loans.
Debt consolidation loan vs. balance transfer credit card
It might be cheaper to consolidate your debt with a 0 percent balance transfer credit card. With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.
Learn more: Balance transfer fees and how to avoid them
Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn't likely to lower your credit utilization ratio like a debt consolidation loan would.
A debt consolidation loan also is going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.
Borrowers with bad to excellent credit can qualify for debt consolidation loans, but those with very good to excellent credit get the best rates. There are lenders that specialize in loans for people with bad credit, but the cost is higher.
Alternatives to a debt consolidation loan
Debt consolidation loans can be useful, but they’re not right for everyone. If you’re looking for alternatives to debt consolidation loans, below are some additional options you may want to consider.
Tapping into home equity
One popular way people pay off debt is to use the equity in their homes. Home equity loans and home equity lines of credit (HELOCs) let borrowers use their homes as collateral in exchange for financing. Just be sure to factor in the risks if you’re considering this option. The lender can seize your home if you can't make the payments.
Debt relief services
Debt relief services, commonly referred to as debt settlement companies, offer another way to deal with your debt if you can’t qualify for a consolidation loan. These companies reach out to creditors and debt collectors on your behalf and try to settle the debt for a lesser amount.
If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), be aware that the fees these companies charge can be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.
Credit counseling
Another option that can help you get debt under control is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to debt counseling, these companies may offer a service known as a debt management plan, or DMP.
With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest rates and fees on your behalf to lower your monthly debt obligation and help you pay the debts off faster.
DMPs are rarely free, though, even if they’re done by a nonprofit credit counseling service. You may have to pay a setup fee of $30 to $50, plus a monthly fee (often $20 to $75) to the credit counseling company for managing your DMP over a three- to five-year term.
Details: Best debt consolidation loan companies of 2021
- Best for high-income earners with good credit: Best Egg
- Best for consolidating credit card debt: Payoff
- Best for high-dollar loans and longer repayment terms: LightStream
- Best for smaller loans with a credit union: PenFed
- Best for fair to poor credit: OneMain Financial
- Best for good credit and next-day funding: Discover
- Best for consumers with little credit history: Upstart
- Best for consolidating large debts: Marcus by Goldman Sachs
Best for high-income earners with good credit: Best Egg
Why Best Egg is the best for high-income earners with good credit: The best rates and terms go to borrowers who earn $100,000 or more and have a credit score of at least 700, which is “good” on the FICO scale.
Overview: Best Egg offers unsecured personal loans for a variety of purposes, including debt consolidation. If you have a credit score as low as 640, you may qualify based on other criteria, such as income. Loans range from $2,000 to $50,000.
Perks: There is no penalty if you pay off your consolidation loan ahead of schedule. Application and approval are done online, and it’s possible to get your money within a single business day.
What to watch out for: Origination fees range from 0.99 percent to 5.99 percent, and the fee is taken off the top of the loan. So, if you borrow $10,000 and pay a 1 percent origination fee, $9,900 will be disbursed to you, but you must repay the lender for the full $10,000. Another caution: There is a $15 fee for late payments.
| Best Egg |
| 4.6 / 5.0 |
| 640 |
| 5.99%–29.99% |
| $2,000–$50,000 |
| 3 to 5 years |
| Not specified |
| Origination fee: 0.99% to 5.99% of loan amount;
Late fee: $15; Returned payment fee: $15 |
Read Bankrate's expert Best Egg Review
Best for consolidating credit card debt: Payoff
Why Payoff is the best for consolidating credit card debt: Its personal loans can be used only to consolidate credit card debt.
Overview: Payoff is specifically for borrowers who want to pay off their credit card debt. The application and approval process are done online.
Perks: There are no application fees, prepayment penalties, late fees or annual fees. Borrowers with a credit score of 640 or higher may qualify. As with any debt consolidation loan, there’s a chance that you can raise your credit score if you abide by the terms of your loan.
What to watch out for: Origination fees range from 0 percent to 5 percent. Additionally, Payoff does not issue loans in Massachusetts, Mississippi, Nebraska or Nevada.
| Payoff |
| 4.5 / 5.0 |
| 640 |
| 5.99%–24.99% |
| $5,000–$40,000 |
| 2 to 5 years |
| Not specified |
| Origination fee: 0% to 5% |
Read Bankrate's expert Payoff Review
Best for high-dollar loans and longer repayment terms: LightStream
Why LightStream is the best for high-dollar loans and longer repayment terms: LightStream offers unsecured, fixed-rate debt consolidation loans as big as $100,000, with up to seven years to repay.
Overview: You must have excellent credit and sufficient assets and income to qualify for a jumbo-size personal loan.
Perks: There are no origination fees or penalties for paying off your debt consolidation loan early. The application and approval process is done online, making it possible to get approved and have the money deposited into your account on the same day.
What to watch out for: Loans that aren’t set up with automatic payment have interest rates that are 0.5 percentage points higher.
| LightStream |
| 4.6 / 5.0 |
| Not disclosed |
| 5.95%–19.99% (with autopay) |
| $5,000–$100,000 |
| 2 to 7 years |
| Not specified |
| None |
Read Bankrate's expert LightStream Review
Best for smaller loans with a credit union: PenFed
Why PenFed is the best for smaller loans with a credit union: You can borrow as little as $600, and credit unions generally have lower costs and fees than other lenders because they’re not-for-profit businesses owned by their members.
Overview: Pentagon Federal Credit Union, known as PenFed, offers unsecured, fixed-rate personal loans for debt consolidation.
Perks: PenFed does not charge origination fees, annual fees or prepayment penalties. The application and approval process can be done online or at one of PenFed’s branches, with approval in as little as one business day.
What to watch out for: You must become a member of the credit union to receive a loan, and there is a $29 charge for each late payment. Also, all loans are subject to a minimum monthly payment of $50.
| PenFed |
| Not specified |
| Starting at 5.99% |
| $600–$35,000 |
| 6 months to 5 years |
| Not specified |
| Late fee: $29; Returned payment fee: $30 |
Read Bankrate's expert PenFed Review
Why OneMain Financial is the best for fair to poor credit: It offers unsecured, fixed-rate loans to consumers with damaged credit at lower rates than risky payday lenders, which can charge as much as 400 percent interest.
Overview: Loan amounts are smaller and rates are higher than typical debt consolidation personal loans, but the lender is still a good alternative to the high interest rates and hidden fees that can come with payday loans. Your credit history, income and debt load determine whether you qualify.
Perks: There is no penalty for paying the loan off early. If you do not qualify for an unsecured personal loan, OneMain may accept your car, boat, RV or motorcycle as collateral, provided it is insured and appraises at a sufficient value.
What to watch out for: OneMain charges an origination fee of 1 percent to 10 percent, or a flat rate of $25 to $400. The fee varies by state and is rolled into the monthly payments. Late fees also vary by state. OneMain Financial does not operate in Alaska, Arkansas, Connecticut, Massachusetts, Rhode Island and Vermont. Additionally, borrowers in North Carolina have unsecured loan limits of $7,500.
| OneMain Financial |
| 3.8 / 5.0 |
| Not specified |
| 18%–35.99% |
| $1,500–$20,000 |
| 2 to 5 years |
| Not specified |
| Origination fee: 1% to 10% or $25 to $400;
Late fee: $5 to $30 or 1.5% to 15%; Nonsufficient funds fee: $10 to $50; all fees vary by state |
Read Bankrate's expert OneMain Financial Review
Best for good credit and next-day funding: Discover
Why Discover is the best for good credit and next-day funding: The average Discover borrower has very good credit, and it’s possible to get an approval decision the same day you apply and get your money the next business day, provided your application is accurate and complete.
Overview: Discover offers unsecured personal loans for debt consolidation, with the option to pay creditors directly.
Perks: Discover personal loans have no origination fees, closing costs or prepayment penalties.
What to watch out for: There is a $39 penalty for late payments, which is higher than the late fee for many other lenders. Also, co-signers are not permitted.
| Discover |
| 4.8 / 5.0 |
| 660 |
| 6.99%–24.99% |
| $2,500–$35,000 |
| 3 to 7 years |
| $25,000 |
| Late fee: $39 |
Read Bankrate's expert Discover Review
Best for consumers with little credit history: Upstart
Why Upstart is the best for consumers with little credit history: Rather than just looking at credit history, Upstart considers an applicant’s education, area of study, earning potential and job history when determining loan qualification. Its minimum FICO credit score is 600, which is near the lower end of the fair credit band.
Overview: Upstart offers unsecured personal loans for debt consolidation to consumers who have very little credit history but have regular income.
Perks: Upstart does not charge prepayment penalties. The initial application generates a soft credit pull that does not hurt your score, and you can get your loan money in one business day after approval.
What to watch out for: You must have a U.S. bank account. Upstart also charges origination fees of up to 8 percent, which is steep.
| Upstart |
| 4.5 / 5.0 |
| 600 |
| 6.95%–35.99% |
| $1,000–$50,000 |
| 3 years or 5 years |
| Not specified |
| Origination fee: up to 8%; Late fee: the greater of 5% of past due amount or $15; Returned check fee: $15; One-time paper copies fee: $10 |
Read Bankrate's expert Upstart Review
Why Marcus by Goldman Sachs is the best for consolidating large debts: The $40,000 loan limit can accommodate borrowers with a lot of debt to consolidate, and they can choose to have Marcus pay their creditors directly.
Overview: Marcus by Goldman Sachs offers unsecured personal loans for debt consolidation to consumers who don’t have much credit history.
Perks: You can change the due date of your monthly bill up to three times during the life of the loan.
What to watch out for: No co-signers are allowed, and it can take five days to receive your loan funds. Consumers with lackluster credit may not qualify.
| Marcus by Goldman Sachs |
| 4.8 / 5.0 |
| 660 |
| 6.99%–19.99% (with autopay) |
| $3,500–$40,000 |
| 3 to 6 years |
| Not specified |
| None |
Read Bankrate's expert Marcus by Goldman Sachs Review
How do I choose the best debt consolidation loan?
It's important to get a debt consolidation loan that fits your budget and helps you reach your goal of eliminating debt. Many lenders will prequalify you without making a hard inquiry into your credit. Prequalification gives you a good idea of the rate, loan amount and loan term that you could qualify for.
When you shop for a debt consolidation loan, look at the APR and make sure the repayment term is comfortable.
“You’ll want to reduce the interest rate on your debt as much as possible, but don’t fall into the trap of stretching out the loan term too much," says Greg McBride, CFA, chief financial analyst for Bankrate. "The extra payments will negate some of your savings.”
"Consider making extra payments so you’re paying the same amount toward the debt as you were before the consolidation, but with a lower rate, you’ll get it paid off sooner and at lower cost.”
When you shop, compare loan costs, such as origination fees and other charges.
FAQs about debt consolidation loans
How do high interest rates affect my debt?
When you repay a loan, you're not just paying back the amount you borrowed; you'll also pay an additional sum each month in the form of interest. If you have a high interest rate, you'll be charged more on your outstanding balance, so it could take longer for you to pay off your debt.
Say you have $5,000 in credit card debt and a card that requires a minimum payment of 2 percent of your balance. Using a credit card calculator, you can see that your minimum payment starts at $100. If you have a 5 percent interest rate on that card, roughly $20 of your minimum payment would go toward interest and $80 would go toward your principal in the first month.
If you have an 18 percent interest rate, however, $75 of your payment would go toward interest and only $25 toward the principal in the first month. This would also more than double the amount of time it would take to pay off the loan, and the amount of interest you would pay during the repayment period would be more than twice the initial credit card balance.
What are the risks of a debt consolidation loan?
One of the biggest risks of a debt consolidation loan is the potential to go into deeper debt. Unless you can rein in the spending that got you into debt in the first place, a debt consolidation loan will not help you. If you use the loan to pay off your credit cards and then start running up card balances again, you'll dig yourself into a deeper debt hole.
The monthly payments can also be high. Because you are paying off several debts with the loan, your monthly payments can be steep; it’s not like making minimum monthly payments on several credit cards. You have to be sure you can handle the payments until the loan is repaid.
