If you’re d🦩ealing with a significant amount of high-interest debt, it may be time to find out how to simplify your repayment with a debt consolidation loan. This type of personal loan allows you to combine your debt and, dependingꦕ on your financial situation, score lower interest than your current rate.
If you’re considering this debt-relief strategy, the following informa🔯tion can h🦄elp you make the right decision:
- How does debt consolidation work?
- How to consolidate bills with a loan
- 16 debt consolidation lenders
- Benefits of using a debt consolidation loan
- Debt consolidation vs. debt relief: What’s the difference?
- Consolidating debt with bad credit
- Other consolidation options
How does debt consolidation work?
Debt consolidation is a type of personal loan that you can use to pay off debt. It ꦜessentially combines multiple debts into one🌼 loan you’ll repay over time.
The aim of a debt consolidation loan is to get a lower interest rate than your current rates (saving you money throughout the life of the loan) and simplify your loan payments. As long as you make consistent payments over time, it can even help to improve y☂our cred🍨it score.
Types of debt you can pay off with a debt consolidation loan include credit cards, medical bills, p▨ayday loans, and other types of unsecured l🎐oans.
For instance, say you have five credit cards, averaging around 24% in interest with an overall balance of $26,000. Taking out a debt consolidation loan at a 15% rate could save you quite a bit and is easier to manage than juggling five payment due dates.𝔉
How to consolidate bills with a personal loan
Debt consolidation typically makes more sense if you’re trying to pay off considerable debt. That’s because you’ll be subject to a hard credit inquiry — which can temporarꦜily affect your credit score — and you may have to pay fees in addition to interest. An origination fee on a personal loan, for example, can set you back 0% to 8% of the loan amount.
If you’re trying to pay off a smaller debt, a debt consolidation loan may not be worth the cost. Instead, it would be better to pay off your existing loans faster to reduce the🐎 interest paid — as long as the loans don’t have prepayment penalties.
If it makes sense fo🌠r youไr situation to consolidate your loans, follow these steps:
- Do your research: It’s a smart idea to shop around multiple lenders to compare and find the best rates and terms for your financial profile. Features to look for include interest rates, fees, repayment terms, and other perks the lender provides.
- Select a loan: Once you’ve compiled a list of potential lenders and compared them, it’s time to select the loan with the best terms for you.
- Complete the application and provide documentation: Fill out the lender’s application form and provide requested information, such as pay stubs, tax returns, and driver’s license number.
- Sign closing documents and wait for funds: Once the loan is approved, the lender will send over documents to sign. You’ll also need to provide your banking information to receive the funds. Depending on the lender, you can get money as soon as the next business day.
Understanding your debt consolidation loan’s cost can help you prepare for your monthly payments. Consider using the following personal loan calculator to estimate your loan obligation.
16 debt consolidation lenders
Shopping around for lenders increases your chances of finding a loan that best matches you꧟r needs. Consider looking at the following Credible lenders as you’re doing your research.
| Lender | Good option if you… | Terms | APR rates* | Minimum credit score |
|---|---|---|---|---|
| 1. Upstart | Have limited credit history | 3, 5, or 7 years | 5.40 – 35.99% | 580 |
| 2. Lightstream | Have good credit and are looking to borrow large amounts | 2 – 7 years | 5.99 – 23.99% | 660 |
| 3. Discover | Have good or excellent credit and want longer repayment terms | 3 – 7 years | 6.99 – 24.99% | 660 |
| 4. Reach Financial | Want customizable monthly payments | 2 – 5 years | 5.99 – 35.99% | 600 |
| 5. PenFed | Want or need a cosigner | 1 – 5 years | 7.74 – 17.99% | 660 |
| 6. Upgrade | Need to build credit and want fast funding | 3 – 7 years | 7.96 – 35.97% | 560 |
| 7. Axos Bank | Have excellent credit | 3 – 6 years | 7.99 – 15.19% | 700 |
| 8. SoFi | Want to consolidate a high balances, receive SoFi perks | 2 – 7 years | 7.99 – 23.43% | Not disclosed |
| 9. Achieve | Want to consolidate high-interest debt | 2 – 5 years | 7.99 – 29.99% | Not disclosed |
| 10. Happy Money | Want to consolidate credit card balances | 2 – 5 years | 7.99 – 29.99% | 600 |
| 11. LendingPoint | Have fair credit | 2 – 6 years | 7.99 – 35.99% | 600 |
| 12. LendingClub | Want to consolidate credit card balances | 3 – 5 years | 8.30 – 36.00% | 600 |
| 13. Best Egg | Have good credit and want fast funding | 2 – 5 years | 8.99 – 35.99% | 600 |
| 14. Avant | Have lower credit scores | 2 – 5 years | 9.95 – 35.99% | 550 |
| 15. Universal Credit | Want to build your credit | 3, 5, or 7 years | 11.69 – 35.93% | 560 |
| 16. OneMain Financial | Have lower credit scores | 2 – 5 years | 18.00 – 35.99% | none |
Benefits of using a personal loan for debt consolidation
Th𒆙ere are several benefits to consolidating debt, including:
- Lower monthly payments: Taking out a debt consolidation loan with a lengthier repayment term can reduce your monthly payments. However, keep in mind that if you stretch out your repayment, you could pay more interest over time.
- Lower interest rates: One of the critical advantages of a debt consolidation loan is qualifying for a lower interest rate, which can save you thousands of dollars in interest over time.
- One payment due date to one creditor: Consolidating all your debts into one streamlines your debt repayment journey by simplifying your monthly payment schedule.
Debt consolidation vs. debt relief: What’s the difference?
Both debt consolidation and debt relief (or debt settlement) help consumers manage significant debt. While 🌠both ways include fees, they have key differences:
- Debt settlement companies negotiate debt payments on your behalf, whereas you use debt consolidation to pay off the total amount of the loan.
- Debt settlement companies claim to negotiate on your behalf to lower the total amount you owe.
- You pay a debt consolidation loan in monthly installments, whereas with a debt settlement, you pay the company, and it then passes on the payment to your creditors.
- Debt settlement companies may not be able to settle all your debts, whereas with debt consolidation loans, you should be able to pay all your creditors.
- Debt settlement companies may encourage you to stop making payments while helping to settle your debt, which could lead to negative consequences for your credit history.
Consolidating debt with bad credit
It’s possible to consolidate your debt with bad credit. While your options may be more limited than someone with good credit, you﷽ can find debt consolidation lenders willing to work with you. You’ll still want to sho▨p around to find the best fit for your needs.
A couple of options include:
- Qualifying with a lender that offers personal loans for fair credit
- Adding a creditworthy co-applicant to your loan application, such as a cosigner or co-borrower who agrees to repay the loan if you don’t
- Considering secured personal loans, which rely on collateral to make up for a subpar credit history
In addition, debt consolidation could help build your credit score. With only one monthly payment to keep up with, it may be easier 🌃to make consi🗹stent on-time payments, boosting your score.
Additional consolidation options
Other ways to consolidate your bills include:✨
- Home equity loan: Homeowners can tap into their home equity to pay off high-interest debt. While home equity loans usually come with lower interest rates, you’re securing this loan with your house. That means you could risk losing your home if you can’t keep up with payments.
- Home equity line of credit: Also referred to as a HELOC, this type of loan is similar to a home equity loan, except you can repeatedly draw from the loan up to the limit set by the lender. Like a home equity loan, you put your home at risk if you default on the loan.
- Student loan refinancing: Most lenders typically don’t allow borrowers to consolidate their student loans. Instead, it may be worth considering refinancing them to a lower interest rate to save money.