*Rates and APYs are subject to change. All information provided here is accurate as of September 26, 2024.

Money’s Main Takeaways

If you qualify for a favorable interest rate, make your loan payments on time and don’t accrue any more bad debt in the process, debt consolidation loans can be an effective way to pay off high interest debt.
The best debt consolidation loans offer pre qualification, online approval, flexible terms, competitive interest rates — and don’t have fees or prepayment penalties.
This type of loan is often used to consolidate high interest credit card debt for a lower rate.
Discover, Lightstream and SoFi offer some of the best loan options across all the companies we reviewed.

Our Top Picks for Best Debt Consolidation Loans of October 2024

The companies listed below are organized alphabetically.

Accredited Debt Relief – Best Debt Settlement Service
Achieve – Best Online Quote
Avant – Best Financial Resources
Best Egg – Best for Easy Application
Discover – Best for Credit Card Debt
Fiona – Best for Comparing Lenders
Happy Money – Best for Multiple Options
LightStream – Best for Large Loans
OneMain Financial – Best for In-Person Service
PenFed – Best for Small Loans
SoFi – Best for No Fees
Upstart – Best for Flexible Qualification

Best Debt Consolidation Loans Reviews

Why we chose it: Accredited Debt Relief is primarily a debt settlement service that helps people consolidate and renegotiate their debt.

Accredited charges a fee of 15-25%. While that may seem high, Accredited could negotiate with your creditors and reduce your debt by as much as 50%, leaving you paying much less than originally owed. In addition, Accredited won’t charge any fee until you’ve agreed on a plan and there’s a clear path forward.

Accredited also offers debt consolidation loans if that is determined to be a better course of action for the client.

Read our full review of Accredited Debt Relief.

Pros

Funded one day after approval
No prepayment penalty
Avant mobile app for iOS and Android

Cons

Administration fee of up to 9.99%
Late and returned payment fees
No Autopay discount available

HIGHLIGHTS

APR:
9.95%- 35.99%

Loan amount:
$2,000-$35,000

Term options:
12 to 60 months

Minimum Credit Score:
Not specified

Why we chose it: Avant boasts an extensive financial blog, online resources, and multiple ways to talk to live representatives.

Avant features loan pre-approval, Autopay and a mobile app available where customers can manage their loans. Customer service is available online, via email or by phone. While its APRs are somewhat higher than its competitors, Avant does offer loans for self-employed individuals. Bear in mind that Avant doesn’t offer debt consolidation loans per se, but rather personal loans. And, though the company does service the loans, it doesn’t fund them.

Pros

Approval in minutes
APR from 7.99%-35.99%
Funds within 24 hours after approval
Personal loan calculator

Cons

Origination fee of 0.99-9.99% of the loan amount
Origination fee on a 4-year plus loan term will be at least 4.99%

High income requirements to qualify for the lowest rates

HIGHLIGHTS

APR:
7.99%- 35.99%

Loan amount:
$2,000-$50,000

Term options:
36 to 60 months

Minimum Credit Score:
700+ to qualify for best rate

Why we chose it: Best Egg offers a fast online application that enables customers to get approved in minutes.

Best Egg’s platform provides a simple and convenient online application process, facilitating access to financial assistance. Personal loan options include consolidating multiple loans into a single loan or refinancing credit card debt. The company provides personal loans ranging from $2,000 to $50,000 , with a minimum origination fee of 4.99% for loan terms of 4+ years. Note that residents of Massachusetts, Ohio and Georgia have different minimum loan amounts.

Read our full review of Best Egg personal loans.

Pros

Pays lenders directly
Same-day approval
You can return loan funds within 30 days
You can apply online or by phone

Cons

Minimum household annual income of $25,000
Late payment fee of $39
Funds cannot be used to pay secured loans or Discover credit cards

Why we chose it: Discover’s low interest rates make it our top choice for best debt consolidation loan for credit card debt.

Upon approval, Discover will pay your credit card issuers within one business day, quickly canceling your balances. Discover also doesn’t charge any origination or prepayment fees, and its personal loans have some of the lowest minimum APRs available, making the company far preferable to continuing to pay high credit card interest rates.

Aside from its debt consolidation loans, Discover also offers balance transfers for credit card debt. It was ranked second in the 2024 J.D. Power Consumer Lending Satisfaction Study.

Pros

Partners with TransUnion to provide your credit score

Online application process and loan calculator

Loan products for borrowers with poor credit
Some online lenders offer personal loans up to $250,000

Cons

Credit requirements depend on the company selected

Some of its lenders will charge an origination fee of up to 6% of the loan amount

Why we chose it: Fiona ranked as best for comparing personal loan lenders as its marketplace enables borrowers to browse and compare multiple lenders based on criteria like creditworthiness and location.

Fiona offers personal loans for debt consolidation from an array of lending partners and for all types of credit, from poor to excellent. It partners with renowned companies such as LendingClub, SoFi, Avant and Marcus by Goldman Sachs.

Read our full review of Fiona personal loans.

Pros

Payoff loan with customizable terms, rates and monthly payment
APRs start at 12.45%
Pays creditors directly

Cons

Loans start at $5,000
Origination fee of 0%-5% of the loan amount

Customers report prolonged approval time

HIGHLIGHTS

APR:
11.72%- 17.99%

Loan amount:
$5,000-$40,000

Term options:
24 to 60 months

Minimum Credit Score:
Not specified

Why we chose it: Happy Money has a free consultation where they assess your financial situation and offer you the most suitable options based on the assessment.

Happy Money‘s Payoff Loan™ is designed specifically for paying off credit card debt. Once you’ve completed the initial form, the company then creates a bespoke plan with different options based on your best rate, lowest monthly payment and quickest repayment time. The company doesn’t charge any application, prepayment or late fees — and its minimum credit score of 640 is reasonable.. However, it does charge an origination fee of up to 5% of the loan amount.

Pros

No fees for loan origination, late payments or prepayment
Borrowers with excellent credit can get a lower interest rate

0.50% rate discount for setting up Autopay

Cons

Doesn’t provide loan pre-approvals
Doesn’t accept loan applications via phone or fax

Autopay discount only available before loan disbursement

Why we chose it: LightStream is our top choice for large loans, considering its $100,000 limit and flexible repayment terms of two to 12 years.

LightStream offers personal loans up to $100,000. Though this isn’t the only lender we evaluated with this high borrowing amount, it does offer the widest term range – 24 to 144 months. This makes Lightstream the most flexible option for paying back large loans. However, Lightstream requires good to excellent credit, an established credit history, various open accounts and a stable income.

Read our full review of LightStream personal loans.

Pros

Debt consolidation calculator
Brick-and-mortar locations
Loan specialist counseling

Cons

Higher APR range than competitors
Late payment fees from $5 to $30 or 1.5%-15% of your loan amount

Origination fees from $25 to $500 or 1%-10% of your loan amount

HIGHLIGHTS

APR:
18.00%- 35.99%

Loan amount:
$1,500-$20,000

Term options:
24 to 60 months

Minimum Credit Score:
Not specified

Why we chose it: OneMain Financial is an ideal choice if you’d rather face to face interaction with a loan officer when deciding on a consolidation loan option.

OneMain Financial offers online and in-person banking, with branches in 44 states. It features secured and unsecured debt consolidation loans from $1,500-$20,000 and terms from 24-60 months. To obtain the lowest rate on large loans, OneMain requires collateral.

Pros

Apply and check application status online
Accepts co-borrowers
No origination fee or prepayment penalty

Cons

You need to be a credit union member for disbursement
No Autopay discount

Why we chose it: With its $600 minimum loan amount, high customer satisfaction and low interest rates, PenFed is our top pick for best debt consolidation loan for debt under $1,000.

PenFed is a members-owned federal credit union. Becoming a member is a good idea because federal credit unions typically offer more favorable loan terms, such as

Borrowers looking for a small loan will be glad to know that PenFed has one of the lowest minimums on our list. However, since PenFed is a members-owned federal credit union, while you don’t have to be a member to check your rates and get pre-approved, you will have to become a member to apply. This isn’t necessarily a bad thing as federal credit unions typically offer more favorable loan terms, such as lower interest rates and fewer fees.

Read our full review of PenFed personal loans.

Pros

Unemployment protection
Pays lenders directly
Accepts joint applications
Loan disbursement in one or two business days unless paid directly to creditors

Cons

Term range isn’t as varied as competitors

Not open to Mississippi residents
Co-applicant must live in the same residence as the primary borrower

Why we chose it: SoFi offers loans with no fees and many opportunities for discounts.

SoFi ‘s credit card consolidation loans don’t charge any origination, prepayment or late payment fees. The company also offers multiple ways to get discounts on rates — and, if a borrower enrolls in Direct Pay, a service where SoFi pays creditors directly, they’ll obtain an additional 0.25% APR discount.

Aside from these perks, SoFi was ranked fourth in the 2024 J.D. Power Consumer Lending Satisfaction Study. Bear in mind, however, that though it doesn’t disclose its minimum credit score, you might not qualify if yours is less than ideal.

Read our full review of SoFi personal loans.

Pros

Loans from $1,000-$50,000
No prepayment penalty

Cons

Only offers three and five years terms
High origination fee

HIGHLIGHTS

APR:
7.8% – 35.99% APR, may vary by state

Loan amount:
$1,000-$50,000

Term options:
36 to 60 months

Minimum Credit Score:
Not specified

Why we chose it: Upstart considers other information in addition to your credit score when deciding on your application.

Upstart will look at factors such as your employment history and education when you apply, not only your credit score. Their debt consolidation loans range from $1,000-$50,000. Potential borrowers can obtain pre-approval with a soft credit pull that won’t impact their credit score. Most loans are funded the next business day after approval.

Read our full review of Upstart personal loans.

Debt Consolidation Loans Guide

In this section we’ll delve into how to get a debt consolidation loan and how they work, how to choose the best option for your situation, and some other alternatives should they not be the ideal choice for you.

Read on to explore the different debt consolidation loan options available to you, and how they can help you to finally become debt-free.

What is a debt consolidation loan?
How do debt consolidation loans work?
How to get a debt consolidation loan
How to choose the best debt consolidation loan
Alternatives to debt consolidation loans

What is a debt consolidation loan?

Debt consolidation loans let you refinance and combine multiple types of debt into a single loan, typically with a fixed rate. Consolidating debt can potentially reduce overall interest rates and pay off debts more efficiently, as it means borrowers only have a single monthly payment.

It’s also common to use balance transfer credit cards to consolidate debt. If you have several sources of debt, you can learn more about other available options by reading our articles on the best personal loans and best balance transfer credit cards.

How do debt consolidation loans work?

Debt consolidation loans combine other forms of debt into one lower interest loan with more favorable terms. Your credit score and debt to income (DTI) ratio will determine the rate you’re offered. A debt consolidation loan might be a good option if the rate is lower than your current debt, so long as you factor in any fees the loan provider may charge as well.

Debt consolidation loans can simplify your financial life and reduce stress because they eliminate the need to remember multiple monthly payments. They’re most commonly used to consolidate credit card debt, as this typically has high interest rates.

Do debt consolidation loans hurt your credit?

Applying for any new credit product — whether a loan or a new card — will inevitably have an impact on your credit score because it will require a hard inquiry. However, this drop is usually minor and temporary.

In fact, if you pay off your balance without incurring more debt, a debt consolidation loan will eventually help raise your credit score and put you in a better financial position.

Aside from the hard inquiry, here’s a look of what goes into your credit score and some ways debt consolidation loans may positively or negatively impact it:

Credit age: Credit scoring models take into account the length of time each of your accounts has been open. That average is known as your credit age. Opening a new credit account in the form of a debt consolidation loan, will lower your average credit age.
Credit history: This is somewhat similar to your credit age, but it looks at your entire history, i.e. your payment history, how much you owe, how much credit you’re using, how long each account has been open, and any recent credit inquiries. Again, taking out a new credit product will affect your credit history.

Number of accounts: The number of accounts you have also affects your credit. In some cases, the more accounts, the merrier can be true, but too many accounts can hurt you, especially if they’re revolving credit. Additionally, a new loan can impact your eligibility for new accounts if it substantially increases your overall debt.

Single payment: Combining all your accounts into a single payment means you’re more likely to keep better track of your finances and make on-time payments, which can improve your score.

Credit mix: A debt consolidation loan will add variety to your credit mix which could have a positive impact on your score.

Credit utilization ratio: If you’re using a debt consolidation loan to eliminate mostly credit card debt or other lines of credit, it will lower your overall utilization ratio as you pay off the loan and most likely improve your score.

How long will a debt consolidation loan stay on your credit report?

Debt consolidation loans that are closed and in good standing affect your credit positively and can remain on your report for up to ten years. Bear in mind that any late payments to debt consolidation loans can remain as negative marks on your credit for up to seven years.

Pros and cons of debt consolidation

While it can potentially save you money on interest and simplify your financial life, you should be aware of all the facts before committing to a debt consolidation method. Here are some of the pros and cons of debt consolidation.

Pros

Improved credit score

Pay off debt faster
Easier budgeting

Cons

High interest rates
It doesn’t fix underlying financial habits
Fees

Is a debt consolidation loan right for you?

Debt consolidation loans are a great option if you can get rates and terms that are more favorable than your current debt structure. This will usually require a better than average credit score — but people carrying a large, high interest debt load may not meet the minimum credit score requirements. If that’s the case with you, it might be useful to explore some of the many available alternatives.

How to get a debt consolidation loan

1. Check your credit by requesting your reports from one or all three credit bureaus. This can help you get a better idea of the interest rate you might get before risking a hard pull on your credit.

2. Add up your debt and determine the interest rate you’re currently paying on your credit cards and other outstanding debt. This will help you determine the interest rate you’d need from a debt consolidation lender in order for the loan to be worthwhile.

3. Take some time to research and compare lenders, interest rates, loan terms and fees.

4. Use a loan or a debt-to-income ratio calculator to get an idea of the rate you can get, given your credit score.

5. Choose a lender offering a lower interest rate and lower fixed monthly payments than what you currently have.

6. If the pre-approved offers involve a higher interest rate than what you’re currently paying, consider whether you have a friend or family member with a higher credit score who’s willing to act as co-signer.

7. Apply for the loan.

8. Make sure to read the offer’s fine print before accepting it.

9. Obtain the loan funds and pay your debts or, if the lender has a direct payment option, have the lender pay your creditors on your behalf.

How to get a debt consolidation loan with bad credit

Some lenders work with customers with poor credit; however, most lenders will require at least a 620 FICO score (i.e. a “fair” score). Bear in mind that lenders will invariably charge borrowers with little to no credit history their highest annual percentage rates. If you have bad or fair credit, here are three tips to help you get a debt consolidation loan:

Get a secured debt consolidation loan. You can use collateral, such as your car or your home, to guarantee the payment of a secured debt consolidation loan. This type of loan may be easier to get approved for if you have bad credit.
Add a co-signer. If you have a friend or family member with good credit, they may be willing to cosign on your debt consolidation loan. Adding a co-signer may also get you a lower interest rate.
Work with a credit counseling agency. An agency can help you negotiate lower interest rates with your creditors. They can also create a debt management plan (DMP) for you.

Whether you finally get loan approval or your loan application continues to be denied because of poor or no credit, the next step should be to improve your credit score and credit history. To fix your credit, you can also utilize a credit repair service.

How to choose the best debt consolidation loan

Picking the right debt consolidation loan will depend on your financial goals and how much of a monthly payment you can afford.

When choosing a debt consolidation loan, consider the following:

Interest rates

APRs typically range from 7.99% to 35.99%.

Your interest rate will depend on your credit score (FICO or VantageScore), current income, and debt-to-income ratio, among other factors.

Aim to find an APR lower than your current interest rates. For example, if you have a 15% average APR on your credit card debt, only consider lenders that offer lower APRs to consolidate your debt.

Fees

Lender fees may include origination, late payment, and prepayment penalties.

Origination fees usually range from 0% to 10% of the loan amount.

Late payment fees can range from $25 to $45.

Prepayment penalties can be a fixed fee, a percentage of the loan balance, or the interest amount the lender loses by the early payment.

Compare lender fees. Not all lenders charge all fees — and some don’t charge any fees at all.

Loan terms and repayment options

Most repayment options range from one to seven years.

Many lenders offer the option of paying creditors on your behalf.

Different repayment options include via mobile app, website, over the phone and setting up direct deposit.

Look into repayment options and additional perks such as credit score and identity theft monitoring.

Alternatives to debt consolidation loans

Although debt consolidation loans are effective and can have a positive impact on your financial health, they aren’t the only way to get out of debt. If you cannot qualify for a debt consolidation loan with a better APR than your existing debt, the good news is there are several other options available to you.

Debt management

Debt management plans are a service offered by credit counseling agencies. They aim to get you out of debt, but also provide a multidisciplinary approach to improving your spending habits and budgeting skills.

Debt management plans are often offered by nonprofit agencies so they may be free aside from a setup or monthly fee. Certain eligibility requirements must also be met.

Debt settlement

Debt settlement (or debt relief) refers to the process of negotiating with creditors to get them to take less than what you owe. They do this by first instructing you to stop paying your accounts and let them lapse. Then you pay an agreed-on monthly amount to the debt settlement company which they collect in a dedicated bank account.

Faced with the prospect of receiving nothing, the creditor then agrees to accept a smaller amount paid from said dedicated bank account.The debt settlement company cannot charge you until this agreement has been reached and there is a clear plan forward. The fee is usually around 15-25% of your enrolled debt. While you’ve effectively paid less than you owe, the late payments, missed payments and closed accounts will have a negative effect on your credit that could last for years to come.

Debt settlement should only be used in cases where customers already have a low credit score and can’t avail themselves of debt consolidation loans or balance transfer credit cards.The best debt relief companies may be able to get your debt eliminated in as little as a year.

Negotiating with your creditors

Whether you’re dealing with your original creditors or a debt collection agency, it is possible to negotiate your debt on your own. But it can be a frustrating and time-consuming process, requiring tenacity and hard work.

Some credit card companies have hardship programs that can lower your interest rate and/or monthly payments. They might also have a forbearance program, which can eliminate your monthly payment for a set period of time. While these options may alleviate your immediate financial burden, they’ll also extend the duration of your debt.

You can also try negotiating with the creditor directly to get them to accept a lower amount than you owe. But they generally won’t even agree to discuss this unless you are delinquent in your payments, and this will have serious credit implications.

Here, you can find a more detailed guide on how to negotiate with debt collectors.

Home equity loans and home equity lines of credit

Home equity loans and home equity lines of credit (HELOCs) let the customer borrow money against their home equity. Home equity is the difference between the value or amount your home could be sold for and what you owe the mortgage lender.

With a loan, the proceeds are disbursed as a lump sum. Lines of credit, on the other hand, have revolving credit. You can withdraw money as needed during its draw period; when that ends, you pay back whatever you used in monthly installments during the repayment stage.

If this sounds like the right choice for you, check out Money’s best home equity loans and best no-appraisal home equity loans for more information.

Bankruptcy

Bankruptcy is a legal action taken by people or businesses that have reached a point where they’re unable to pay back their debt. It should be a last resort for dealing with creditors and debt issues as it negatively impacts your credit score and ability to obtain future credit. There are two main types of bankruptcies:

Chapter 7: When a trustee takes control of your property to sell it or turn it into a profit to pay your creditors. Depending on where you live, you might be able to keep some of your property.

Chapter 13: A court approves a repayment plan where you agree to pay part of your wages to your creditors. A trustee will be appointed by the court to collect the money from you and make sure the payment plan is completed.

Not all debt can be discharged by the court when you file for bankruptcy. Some debt that cannot be discharged includes:

Child support
Student loans
Court fines
Most taxes

A bankruptcy will appear on your credit report for around ten years, making it more challenging to apply and be approved for credit in the future.

If your situation calls for this measure, read our guide on how to file for bankruptcy for more information.

Debt Consolidation Loans FAQs

What is debt consolidation?

Debt consolidation is a financial strategy involving a new loan to pay off multiple debts. Find out more by reading our Debt Consolidation Guide to help determine whether it makes sense for you.

Is debt consolidation a good idea?

Debt consolidation can be a good option for people struggling to manage multiple monthly payments. Exchanging your high interest debt for a more reasonable rate helps you pay down your debt more quickly by reducing your overall interest costs.

However, consolidating debt is only recommended if you have good credit and qualify for that lower interest rate. Be sure to compare rates, loan terms and fees before choosing a loan.

How does debt consolidation work?

Debt consolidation works by taking out a new loan to pay off multiple current debts. The new loan typically has a lower interest rate than the existing debts, so you can save money on interest payments over time. The lender assesses your credit score and income to determine if you qualify for the loan and then sets your loan’s conditions.

Do debt consolidation loans hurt your credit?

When you apply for a new loan or credit card to consolidate your debts, the initial credit inquiry may temporarily have a small negative impact on your credit score. However, if you consistently make on-time payments on the new consolidated loan or credit card, it can positively impact your credit score over time.

What is the best debt consolidation company?

The best debt consolidation company for you depends on your priorities. We found that LightStream is a good choice for consolidating a large debt. For smaller loans, PenFed is a good option. If you’re looking for more of a one-stop shop, Fiona offers debt consolidation loans for all types of credit and allows you to compare top lenders in one place.

How We Chose the Best Debt Consolidation Loans

To select the best debt consolidation loans, we took into consideration the following:

Rates. We chose lenders that offered some of the lowest APRs on the market.

Variety of loan terms. We favored lenders that offered a wide array of repayment terms, from six months to more than five years.

Customer service. The best debt consolidation lenders should have accessible customer service and loan specialists, as well as a variety of ways to reach them — phone, email and chat.

Streamlined application process and fast funding. While some lenders do require customers to call or visit a bank branch, we favored those that made the application and funding process as quick and painless as possible.

Few or no fees. Most lenders charge fees; we looked for those that charged the least, if at all.

Summary of Money’s Best Debt Consolidation Loans of October 2024

The companies listed below are organized alphabetically.

Accredited Debt Relief – Best Debt Settlement Service
Achieve – Best Online Quote
Avant – Best Financial Resources
Best Egg – Best for Easy Application
Discover – Best for Credit Card Debt
Fiona – Best for Comparing Lenders
Happy Money – Best for Multiple Options
LightStream – Best for Large Loans
OneMain Financial – Best for In-Person Service
PenFed – Best for Small Loans
SoFi – Best for No Fees
Upstart – Best for Flexible Qualification
According to The Money.com, rates and APYs for debt consolidation loans are subject to change and all information provided is accurate as of September 26, 2024. If you qualify for a favorable interest rate and make timely payments, debt consolidation loans can effectively help you pay off high interest debt. The best debt consolidation loans offer pre-qualification, online approval, flexible terms, competitive interest rates, and have no fees or prepayment penalties. These loans are often used to consolidate credit card debt for a lower rate. After reviewing multiple companies, Discover, Lightstream, and SoFi were found to offer some of the best loan options. Our team has evaluated these companies independently and based on 20+ data points, including cost, terms, and customer reviews. Accredited Debt Relief was chosen as the best debt settlement service, as they assist borrowers with debt management and do not charge a fee until all debts are settled. However, they do require a minimum of $20,000 in debt and charge a fee of 15-25% of the debt amount. Avant was chosen as the best for online quotes, while Best Egg was chosen for their easy application process. Fiona was chosen as the best for comparing lenders, and Happy Money was chosen for their multiple options. Lightstream was chosen as the best for large loans, while OneMain Financial was chosen for their in-person service. PenFed was chosen as the best for small loans, and SoFi was chosen for their lack of fees. Upstart was chosen for their flexible qualification process. 

Source:Read More