Debt consolidation involves combining several debts into a single loan to reduce the number of bills you’re paying each month. Ideally, when consolidating debt, you also lower the overall interest rate and can ultimately pay off the debt more quickly.

If you’re considering debt consolidation, you should decide which method is best and evaluate your financial and credit health to determine if you’re a good fit. Once you’ve taken those steps, you can move on to researching and evaluating lenders to find the best fit to help you pay those overwhelming debt balances off sooner.

Identify which type of debt consolidation works best for you

The first step is to evaluate debt consolidation options and select the method that will work best for you.

Selecting the best option for your needs is important as it will help guide the type of lender you choose. Not all lenders offer the same borrowing options. Once you’ve decided on a consolidation method, you can analyze each lender’s interest rates, loan terms and fees to determine which offers make the most sense financially to achieve your goals.

Personal loan

Many lenders offer debt consolidation loans, which are a type of personal loan designed to help you pay off debt faster and save in interest. Debt consolidation loans generally come with a fixed interest rate and a one- to 10-year loan term. You’re free to use the funds however you see fit, but the idea is to pay off your outstanding debt balances with the loan.

0% APR credit card

Also known as balance transfer credit cards, these can help you save a sizable amount in interest and eliminate high-interest debt balances sooner. They’re generally reserved for consumers with good or excellent credit, and you should only consider this option if you can pay off the new card during the introductory period. Otherwise, you could be stuck paying a fortune in interest.

Home equity loan

You can convert up to 85 percent of your property’s equity into cash and use it to consolidate debt with a home equity loan. It acts as a second mortgage and comes with a repayment period between five to 30 years. The interest rate is also fixed and lower than most credit cards, but the major drawback is that your home secures these loan products. As a result, you could lose your property to foreclosure if you fall behind on the loan payments.

Home equity line of credit (HELOC)

A HELOC is like a home equity loan – but you won’t receive the loan proceeds in a lump sum. Instead, you’ll get access to a pool of cash that you can pull from as needed during the draw period. Interest-only payments are also required during the draw period on most HELOCs. Once it ends, you’ll repay in monthly installments over a term of up to 20 years. The monthly payment amount may fluctuate since the interest rate on HELOCs is typically variable.

Three best debt consolidation lenders

If you believe taking out a debt consolidation loan is the right move for you, below are some of the best lenders to consider.

Happy Money

Happy Money personal loans are designed only for consolidating credit card debt, so this lender may be a good option if you want to pay off credit card debt faster. Happy Money offers loans through its partner lenders ranging from $5,000 to $40,000, and you can choose to have funds deposited into your bank account or sent directly to your creditors.

APR range: 10.50% to 29.99%


If you have a thin credit profile and want to consolidate debt, Upstart might be a good fit. This lender considers non-traditional factors when reviewing your application, like your education and employment history. You can borrow up to $50,000; if approved, loan funds can be deposited into your account as quickly as the next business day.

APR range: 6.7% to 35.99%


Discover might be a good fit if you have good to excellent credit. This lender doesn’t charge origination fees or application fees, and you can avoid fees altogether if you repay your loan on time. Plus, a Discover personal loan comes with other benefits, such as free FICO scores and online privacy protection. Loan amounts range from $2,500 to $40,000.

APR range: 6.99% to 24.99%

How to qualify for a debt consolidation loan

Lenders want to know that you’re creditworthy and have the means to make on-time payments.

Because of this, the lender will have a few eligibility criteria for you to meet, including:

  • Good credit score. The most competitive interest rates are generally reserved for borrowers with good to excellent credit scores. A lower credit score doesn’t always mean you’ll be denied, but you may receive a steep interest rate.
  • Low debt-to-income (DTI) ratio. Lenders will also review your debt-to-income ratio to determine whether you can afford monthly loan payments and are not taking on more than you can handle. A DTI under 30 percent is a common requirement.
  • Sufficient monthly income. You will need to provide proof of verifiable income and will look for long-term financial stability. Your pay stubs, bank statements or tax returns will need to be submitted when you apply.

Lenders also want to see proof of verifiable income and will look for long-term financial stability.

Also, know that the most competitive interest rates are generally reserved for borrowers with good or excellent credit scores. A lower credit score doesn’t always mean you’ll automatically be denied a loan or credit card. Still, you’ll typically get a steep interest rate if approved to offset the risk of default posed to the lender or creditor.

Ultimately, you may find that it’s not sensible to consolidate your debt if you have bad credit if you only qualify for a higher rate than you’re currently paying.

Shop around for lenders

Most lenders offer online prequalification or preapproval with a soft credit pull. If you’re considering a debt consolidation loan, you’ll also get a sneak peek at potential loan costs to compare your options. The overall cost can vary significantly based on interest, fees and loan term. By previewing the total amount you will pay, you can compare it to the cost of your current debts to ensure debt consolidation is the right move.

In addition to checking online lenders as you’re shopping around, check the options available from banks or credit unions.You may qualify for more favorable loan terms if you have a pre-existing relationship with the lender.

You will need to compare factors like the fees, borrower requirements and loan terms to determine if a lender is the right fit. Not every lender allows you to use its loans to consolidate debt, so ensure the lender you want to work with offers this option.

Evaluate the lender

Once you have a list of lenders, compare them to make the best choice for your budget and debts.

  • Annual percentage rate (APR): The APR is the yearly cost of borrowing. It includes interest and fees, which can help you gauge how much a debt consolidation loan will cost.
  • Lender fees: Some lenders charge origination fees that range from one to 10 percent of the loan amount. The origination fee is included in a loan’s APR. But even if the APR is on the lower end, a steep origination fee could result in you paying more for less funding.
  • Lender features: The best lenders have online dashboards where you can monitor your account, schedule payments and chat with customer service representatives. It’s also ideal if free educational resources can help you manage your credit and overall financial health more effectively.

Customer reviews: You want to select a lender that is reputable and has a track record of providing good service. Checking online reviews from past customers and for accreditation from the Better Business Bureau (BBB) can be a good way to determine a lender’s level of service before signing a contract.

Bottom line

Before you apply for a loan or credit card to consolidate your debt, weigh your options to decide which type of debt consolidation makes the most sense. Get prequalified with at least three lenders to view potential loan costs and compare your options. Doing so will enable you to make an informed decision, meet your debt payoff goals faster and save money.