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To get your search for the best debt consolidation loan going, our list compares top lenders based on fees, interest rates, terms and features. This guide can also help you decide whether it's right to consolidate your debt and provide alternatives.
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What To Know First
Debt consolidation can help you take control of your finances by wrapping multiple payments into one and potentially lowering your overall monthly payment. Finding the best debt consolidation loan relies on comparing key factors:
APR: What you pay in interest plus fees.
Loan amount: How much you can potentially borrow.
Term: How long you can take to pay the loan back.
Minimum credit score: The lowest credit score you can have and still potentially qualify.
For a debt consolidation loan to be effective, you need to have a good enough credit score to qualify with a lender — and have it be high enough to get an APR, loan amount and term that will actually lower your monthly payment amount or the cost of your debt overall.
But being able to qualify is only part of the equation, which is why Bankrate's rating system takes into account more than just the availability. Customer experience is also incorporated into Bankrate lender scores and can give you a better idea of how the borrowing process will be outside of the product itself.
Methodology
To select the top debt consolidation loan lenders, Bankrate reviewed 33 lenders across the personal loan space. Several factors related to consolidation were considered, including a variety of credit profiles accepted, loan amounts, terms and whether the lenders had specialized consolidation loan products or services.
Bankrate star ratings rely on 15 data points broken into three categories: availability, affordability and customer experience. Availability covers how fast you can get a loan, how much you can borrow and the income and credit requirements. Affordability includes fees, the range of interest rates offered and penalties. Lastly, customer experience is an evaluation of online applications, online account access, customer service hours and apps.
Among the top features evaluated for debt consolidation loans were the availability of online applications, flexible repayment options and customer discounts.
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Bankrate’s scores for personal loan lenders evaluate 11 data points related to loan costs and terms, as well as customer experience.
The annual percentage rate (APR) includes your interest rate, plus any loan fees. It reflects the total cost of borrowing.
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The minimum credit score typically required to qualify for a loan with a given lender. Exact thresholds are not always disclosed by a lender and in certain cases the minimum score is the best estimate based on publicly available information. Credit score refers to FICO 9.0 unless otherwise stated.
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Use your loan through Upgrade to pay on high interest credit cards, make a large purchase, finish that home improvement project, or almost any life event!
Personal loans made through Upgrade feature APRs of 5.94%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by Upgrade's lending partners. Information on Upgrade's lending partners can be found at https://www.upgrade.com/lending-partners/.
**Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds sent directly to you should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor.
Get a personal loan up to $50,000 with a fixed APR from 5.99% to 35.99%,Get money in as little as one business day, upon approval and verification,Join more than 450,000 customers at a trusted company with an A+ BBB rating,Use it for almost anything: consolidate debt or other unexpected expenses
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Best Egg personal loans, including the Best Egg Secured Loan, are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender or Blue Ridge Bank, a Nationally Chartered Bank, Member FDIC, Equal Housing Lender. "Best Egg" is a trademark of Marlette Holdings, Inc., a Delaware corporation. All uses of "Best Egg" refer to "the Best Egg personal loan", "the Best Egg Secured Loan", and/or "Best Egg on behalf of Cross River Bank or Blue Ridge Bank, as originator of the Best Egg personal loan," as applicable.
The term, amount, and APR of any loan we offer to you will depend on your credit score, income, debt payment obligations, loan amount, credit history and other factors. Your loan agreement will contain specific terms and conditions. About half of our customers get their money the next day. After successful verification, your money can be deposited in your bank account within 1-3 business days. The timing of available funds upon loan approval may vary depending upon your bank's policies. Loan amounts range from $2,000 - $50,000. Residents of Massachusetts have a minimum loan amount of $6,500; New Mexico and Ohio, $5,000; and Georgia, $3,000. For a second Best Egg loan, your total existing Best Egg loan balances cannot exceed $50,000. Annual Percentage Rates (APRs) range from 5.99% - 35.99%. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0.99% - 5.99% of your loan amount, which will be deducted from any loan proceeds you receive. The origination fee on a loan term 4-years or longer will be at least 4.99%. Your loan term will impact your APR, which may be higher than our lowest advertised rate.
You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest APR. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.
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Fixed rates from 6.99% APR to 22.28% APR APR reflect the 0.25% autopay discount and a 0.25% direct deposit discount. SoFi rate ranges are current as of 1/18/22 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, income, and other factors. See APR examples and terms. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
No Fees. Ever. We don't deduct a sign-up fee from your loan amount.
Loans from $3,500 to $40,000 and fixed rates from 6.99% to 19.99% APR. Only the most creditworthy applications qualify for the largest loan amounts and lowest rates.
Discount when enrolled in Autopay
You may be required to have some of your funds sent directly to creditors to pay down certain types of unsecured debt
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. The availability of a loan offer and the terms of your actual offer will vary due to a number of factors, including your loan purpose, our evaluation of your creditworthiness, your credit history, if we have recently declined your loan application and the number of loans you already have with us. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36 month loans are generally lower than rates for 72 month loans). Your maximum loan amount may vary depending on your loan purpose, income and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs is a brand of Goldman Sachs Bank USA and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions. You may be required to have some of your funds sent directly to creditors to pay down certain types of unsecured debt. Receive a 0.25% APR reduction when you enroll in AutoPay. This reduction will not be applied if AutoPay is not in effect. When enrolled, a larger portion of your monthly payment will be applied to your principal loan amount and less interest will accrue on your loan, which may result in a smaller final payment. See loan agreement for details.
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For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.90. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 2.41%-5%. Personal loan APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for the most creditworthy borrowers.
Eligibility for personal loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank, Member FDIC.
* Applications submitted on this website may be funded by one of several lenders, including: FinWise bank, a Utah-chartered bank Member FDIC; Coastal Community Bank, Member FDIC; and LendingPoint, a licensed lender in certain states. Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates ("APR") may vary based upon LendingPoint's proprietary scoring and underwriting system's review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. Loans are offered from $2,000 to $36,500, at rates ranging from 7.99% to 35.99% APR, with terms from 24 to 60 months. Georgia loans have a minimum $3,500 loan amount. For a well-qualified customer, a $10,000 loan for a period of 48 months with an APR of 23.72% and origination fee of 6% will have a payment of $324.48 per month. (Actual terms and rate depend on credit history, income, and other factors.) Customers may have the option to deduct the origination fee from the disbursed loan amount if desired. The total amount due is the total amount of the loan you will have paid after you have made all payments as scheduled.
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*A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33. Minimum loan amounts may vary by state. If approved, the actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. An administration fee of up to 4.75% will be deducted from the loan proceeds. Avant branded credit products are issued by Webbank, member FDIC.
Personal and auto loans from $1,500-$20,000 (GA minimum $1,500 existing customers for new loans $3100 for others)
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Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on your ability to meet our credit standards (including a responsible credit history, sufficient income after monthly expenses, and availability of collateral). Larger loan amounts require a first lien on a motor vehicle no more than ten years old, that meets our value requirements, titled in your name with valid insurance. Maximum annual percentage rate (APR) is 35.99%, subject to state restrictions. APRs are generally higher on loans not secured by a vehicle. Depending on the state where you open your loan, the origination fee may be either a flat amount or a percentage of your loan amount. Flat fee amounts vary by state, ranging from $25 to $300. Percentage-based fees vary by state ranging from 1% to 10% of your loan amount subject to certain state limits on the fee amount. Active duty military, their spouse or dependents covered under the Military Lending Act may not pledge any vehicle as collateral for a loan. OneMain loan proceeds cannot be used for postsecondary educational expenses as defined by the CFPB’s Regulation Z, such as college, university or vocational expenses; for any business or commercial purpose; to purchase securities; or for gambling or illegal purposes.
Borrowers in these states are subject to these minimum loan sizes: Alabama: $2,100. California: $3,000. Georgia: Unless you are a present customer, $3,100 minimum loan amount. Ohio: $2,000. Virginia: $2,600.
Borrowers (other than present customers) in these states are subject to these maximum unsecured loan sizes: North Carolina: $7,500. New York: $20,000. An unsecured loan is a loan which does not require you to provide collateral (such as a motor vehicle) to the lender.
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The Bankrate guide to choosing the best debt consolidation loan
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A debt consolidation loan can help you manage your debts more effectively, but only if you find a loan that works for your situation. 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 Nov. 12, 2021. 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.
What is debt consolidation?
Debt consolidation is a process where multiple debts, often from things like credit cards, are rolled into a single payment. This can make it easier to pay off debt faster and keep track of how much debt you have.
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 a fixed monthly payment. When managed responsibly, a debt consolidation loan can help you save money on interest and get out of debt faster.
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, although student debt is not able to be consolidated the way other types of debt can.
How do I choose the best debt consolidation loan lender?
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.
You can then use those to compare options and decide which is best for you based on the following factors:
Annual percentage rates. Your APR is determined by your credit score and other financial factors. This is the amount charged on top of your principal amount every month.
Loan cost. When you shop, compare the total cost of each loan, including origination fees and other charges. A large number of fees can outweigh the benefits of a low APR.
Lender features. Potentially helpful features to search for are things like the new lender making direct payments to your previous creditors, credit monitoring, hardship programs and other customer service programs.
Overview:Best Egg offers unsecured personal loans for a variety of purposes, including debt consolidation. If you have a credit score of at least 640, you may qualify based on other criteria, such as income. Best Egg's debt consolidation loans range from $2,000 to $50,000.
Why Best Egg is 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.
Pros
No penalty if you pay off your consolidation loan ahead of schedule
Direct payment for credit card debt consolidation
Flexible due date
Cons
Loan details such as terms and rates are not clear on website
$15 returned payment fee
APRs as high as 35.99%
Impact on debt consolidation borrowers:Borrowers with good credit who consolidate with Best Egg can qualify for extremely low interest rates; this makes debt consolidation much cheaper than paying off individual debts separately.
Time to receive funds: Money may be available within one business day but may take up to three business days.
Fees: Origination fees range from 0.99 percent to 5.99 percent and is taken off the top of the loan, so the money you get will be lower than the total amount but you will still need to pay the loan amount you are quoted in full.
Additional requirements: To receive an online debt consolidationl loan from Best Egg, a borrower must be a U.S. citizen or permanent resident. Loans are not available for people currently living in Iowa, Vermont, West Virginia, Washington, D.C., and the U.S. Territories. Best Egg does not have a cosigner option, so borrowers must qualify on their own. Borrowers should also have a debt-to-income ratio under 30%.
Overview:Payoff is specifically designed for borrowers who want to pay off their credit card debt. The application and approval process are done online.
Why Payoff is the best for consolidating credit card debt: Payoff's personal loans can be used only to consolidate credit card debt, and you can do so without unnecessary fees.
Pros
No application, prepayment, late or annual fees
Free FICO Score every month
Borrowers can change payment due date once every 12 months
Cons
Origination fees up to 5 percent
Low maximum loan amount
No joint applicants
Impact on debt consolidation borrowers: Credit card debt is one of the most common types of debt to consolidate, so Payoff's focused approach can make repayment more manageable.
Time to receive funds: Funds are delivered within 2 to 5 business days after approval.
Fees: Payoff does not charge application fees, prepayment penalties, late fees, returned check fees or annual fees, but it does charge an origination fee from 0 to 5%.
Additional requirements: Borrowers need a credit score of 640 or higher to qualify for Payoff debt consolidation loans. Payoff does not issue loans in Massachusetts, Mississippi, Nebraska or Nevada. Loans from Payoff can only be used for credit card debt consolidation.
Best for high-dollar loans and longer repayment terms
Overview:LightStream offers personal loans for a variety of purposes, including debt consolidation. It stands out for offering loans up to $100,000 and terms of up to 84 months — larger loans and longer terms than what other lenders offer. You must have excellent credit and sufficient assets and income to qualify for a jumbo-size personal loan.
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.
Pros
No penalties for paying off your debt consolidation loan early
Rate beat program
Loan experience guarantee feature
Cons
Loans without automatic payment have interest rates that are 0.5 percentage points higher
No prequalification option
No due date flexibility
Impact on debt consolidation borrowers: Borrowers who have accumulated a lot of debt, especially through a variety of sources, have the chance to get lower monthly payments by choosing one of LightStream's longer repayment terms.
Time to receive funds: Same-day funding is available if borrowers meet certain requirements: the borrower must provide all verification and funding information before 2:30 p.m. EST.
Fees: LightStream does not charge fees. However, late payments will result in higher interest rate accrual.
Additional requirements: Borrowers must have a credit score of at least 660, a good payment history with few delinquencies and an "ability to save" and stable income.
Overview:Pentagon Federal Credit Union, known as PenFed, offers unsecured, fixed-rate personal loans for debt consolidation. While you'll need to become a member of the credit union in order to receive loan funds, you can do so by opening a savings account with a $5 initial deposit.
Why PenFed is the best for smaller loans with a credit union: You can borrow as little as $600 through PenFed, and credit unions often offer more personalized service than larger banks.
Pros
No origination fees, annual fees or prepayment penalties
Online and in-person options
Approval in as little as one business day.
Cons
PenFed membership and savings account required
No cosigners allowed
Membership fees
Impact on debt consolidation borrowers: Borrowers who don't have much debt to consolidate may struggle to find a suitable loan with other lenders; PenFed's $600 minimum ensures that you don't have to borrow more than you truly need.
Time to receive funds: Funds generally arrive one or two business days after loan approval (or same day at a branch).
Fees: PenFed does not charge many common fees, including origination or prepayment fees. However, late fees may go up to $50, and it costs fees to maintain the required savings account unless the borrower keeps a certain amount of money in the account.
Additional requirements: PenFed requires a credit score of at least 650 but otherwise does not publish many details about eligibility requirements.
Overview:OneMain Financial is a bank based out of Indiana. Its 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.
Why OneMain Financial is the best for fair to poor credit: OneMain's fixed-rate loans charge high rates, but borrowers with bad credit will find more favorable rates with the company than with risky payday lenders, which can charge as much as 400 percent interest.
Pros
No penalties for paying off your OneMain loan early
Collateral of a car, boat, RV or motorcycle may be accepted
Evaluates other factors besides credit score
Cons
Lowest possible rate is near the rate cap for many other lenders
Fees and loan amounts vary by state
Low loan limits
Impact on debt consolidation borrowers: While OneMain is not the ideal lender for many borrowers seeking debt consolidation, bad-credit borrowers may have the best chance of qualifying with this lender.
Time to receive funds: Funds may arrive as soon as the next business day after approval.
Fees: OneMain financial has several fees, which vary by state. Origination fees can go from 1 to 10% or $25 to $500. Late fees can go from $5 to $30 or 1.5% to 15%. Insufficient funds fees can range from $10 to $50.
Additional requirements: OneMain Financial evaluates loan eligibility by factors other than a FICO score, so people will bad credit may still qualify for a loan. The minimum loan amounts vary by state (Alabama: $2,100; California: $3,000; Georgia: $3,100 unless you are a present customer; North Dakota: $2,000; Ohio: $2,000; Virginia: $2,600). Borrowers in North Carolina are subject to a maximum loan size of $7,500.
Overview:Discover offers unsecured personal loans for debt consolidation, with the option to pay creditors directly. You cannot apply for a debt consolidation loan from Discover within our site. Read our Discover personal loans lender review for more details about this lender's terms.
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.
Pros
No origination fees, closing costs or prepayment penalties
Large range of repayment terms
Option to pay creditors directly
Cons
$39 penalty for late payments
Co-signers are not permitted
No autopayment discounts
Impact on debt consolidation borrowers: Borrowers who need money quickly will benefit from Discover's fast application and approval process.
Time to receive funds: Funds are available as soon as the next business day but may take up to seven business days in some cases.
Fees: Discover does not charge many common fees, but a late fee of $39 may apply if a payment is not received by the due date.
Additional requirements: Borrowers must have at least $25,000 in annual household income and a credit score of at least 660 to qualify. Loans from Discover cannot be used to repay a Discover credit card. Customers can change their payment due date twice during the life of the loan as long as at least 12 months have passed since a previous change.
Overview:Upstart offers unsecured personal loans for debt consolidation to consumers who have little credit history but a regular income. You cannot apply for a debt consolidation loan from Upstart within our site. Read our Upstart personal loans lender review for more details about this lender's terms.
Why Upstart is best for consumers with little credit history: Upstart has flexible credit requirements which is great for borrowers who are just starting out.
Pros
No charge prepayment penalties
Prequalification with a soft credit check
Custom payment dates
Cons
Origination fees of up to 8 percent
Short loan term amounts
High APRs
Impact on debt consolidation borrowers: Borrowers who haven't had time to build up a significant credit history may have trouble getting approved with other lenders, so Upstart could be the best option for funding.
Time to receive funds: Most loans accepted before 5 p.m. EST are funded the next business day, but some loans may take up to three business days.
Fees: Upstart does not charge prepayment fees, but it does charge up to an 8% origination fee, either 5% or $25 of past-due amounts (whichever is greater), a $15 returned check fee and a one-time paper copies fee of $10.
Additional requirements: Borrowers must have a credit score of at least 600, a minimum annual income of at least $12,000 and a job or other source of regular income. The borrower's debt-to-income ratio must not exceed 50% (lower in select states). The minimum loan amount varies by state (Massachusetts: $7,000; Ohio: $6,000; New Mexico: $5,100; Georgia: $3,100). Loans are not available to residents of West Virginia or Iowa.
Overview:Marcus by Goldman Sachs offers unsecured personal loans for debt consolidation to consumers who don’t have much credit history.
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.
Pros
Due date may be adjusted up to three times
One payment able to be deferred after you've made after consistent payment
Direct payments to creditors
Cons
No co-signers are allowed
Eligibility information not clearly disclosed
Cannot refinance student loans
Impact on debt consolidation borrowers: The ability to defer one payment after 12 payments is a useful feature if you hit a financial snag and need some breathing room in your budget; deferring a payment instead of missing it will prevent credit score damage.
Time to receive funds: Funding usually takes place between one and four business days after approval.
Fees: Marcus does not charge fees, although late payments will increase the interest rate and result in a higher end loan cost.
Additional requirements: Marcus does not disclose many of its requirements. It does not specify minimum credit score or minimum income. Co-signers and co-borrowers are not permitted.
Potentially lower interest rates: 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 potentially save a lot of money in interest and fees.
Sooner debt payoff: Combining all the debt into one bucket can make it easier to pay the debt off sooner, because you don’t have to balance separate payments.
Simplified finances: 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. Debt consolidation puts everything into one place so you can keep track of it easier.
Set repayment schedule: 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. You don’t have to worry about multiple due dates or varying payment amounts.
Credit score improvement: Credit scoring models, like FICO and VantageScore, place a lot of weight on your credit utilization ratio. When a new consolidation loan lowers your credit utilization ratio, your credit score might climb as a result.
Generally, a debt consolidation loan is a good idea if you can pay off the new debt, you have a high credit score to get good rates and you like the stability of a fixed monthly payment.
Although debt consolidation can be helpful for many people, it cannot solve all your financial problems on its own. 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. It's also not a good idea if you get offered higher interest rates through consolidation — otherwise, you'll pay more on your debt overall.
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.
Who this is best for: Borrowers who have built up equity in their homes.
Home equity loan vs. debt consolidation loan: Home equity loans and HELOCs may offer lower rates than debt consolidation loans, though they come with more risks, since your home is used as collateral.
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.
Who this is best for: Borrowers who are experiencing financial hardship and cannot pay their debt.
Debt relief services vs. debt consolidation loan: Unlike debt consolidation loans, debt relief services aim to eliminate some of your debt without your having to pay it. With that said, pursuing debt relief is a risky move, and it can damage your credit score.
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.
Who this is best for: Borrowers who need help structuring their debt payments.
Credit counseling vs. debt consolidation loan: With a debt consolidation loan, you're in control of your payoff plan, and you can often apply with few fees. With credit counseling, a third party manages your payments while charging setup fees.
Balance transfer credit card
With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent inroductory 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.
Keep in mind that paying of 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.
Who this is best for: Borrowers who can pay off existing debt quickly.
Balance transfer credit card vs. debt consolidation loan: Often, balance transfer cards are the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.
FAQs about debt consolidation loans
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 and you'll pay more overall.
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.
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.
The savings with a debt consolidation loan will be different for everyone. It will depend on your interest rates with the individual creditors versus your interest rate after consolidating.
No. You can choose which debts to consolidate and which ones will be more beneficial to keep separate. Some types of debt, such as federal student loans, cannot be consolidated through a debt consolidation loan or credit card.
If you have multiple types of debt, you will likely have different due dates and amounts due on each bill. With debt consolidation, you only need to make one monthly payment. You'll know how much your bill will be each month because payments will be set when you get your 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.
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.
Applying for a debt consolidation loan may temporarily lower 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.
Next steps
If you're interested in consolidating your debts using a debt consolidation loan, take the time to research your options and get prequalified with a few different lenders. Because all lenders offer different terms and evaluate eligibility differently, comparing quotes is the best way to know which loan option is best for you.
