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American consumers had a total of $820 billion in credit card debt at the end of 2020, according to the Federal Reserve Bank of New York. Although total debt obliglations were lower in 2020 than in the years before, consumer debt (credit cards, auto, and personal loans) still accounted for 5.4% of American households’ disposable income.Â
If you have a lot of high-interest debt, such as credit card debt, personal loans, medical loans, or payday loans, a debt consolidation loan could be a good option. If you consolidate this debt into a single loan with a lower interest rate than your existing debt, you can save on interest, pay off your debts faster, and streamline your finances with one monthly payment.Â
Keep in mind that a debt consolidation loan only makes sense if you can get an interest rate that’s lower than the current interest rate of your existing debts. You should also take into account any fees. Always comparison shop between multiple lenders to get the best rate possible, then run the numbers yourself to see if a debt consolidation loan makes sense for your personal situation.Â
If you’re looking for a place to start, here are our picks for the best debt consolidation loans.Â
Best Debt Consolidation Loan Rates in September 2021
| INSTITUTION | CURRENT APR | LOAN TERM RANGE | MIN. LOAN AMT. | MAX LOAN AMT. | MINIMUM CREDIT SCORE REQUIRED |
|---|---|---|---|---|---|
| LightStream | 2.49% to 19.99% (0.50% autopay discount included) | 2 to 7 years | $5,000 | $100,000 | Not specified |
| SoFi | 4.99% to 19.63% (0.25% AutoPay discount included) | 3 to 7 years | $5,000 | $100,000 | 680 |
| Payoff | 5.99% to 24.99% | 2 to 5 years | $5,000 | $40,000 | 640 |
| Best Egg | 5.99% to 35.99% | 3 to 5 years | $2,000 | $50,000 | 640 |
| Marcus by Goldman Sachs | 6.99% to 19.99% (0.25% AutoPay discount included) | 3 to 6 years | $3,500 | $40,000 | Not specified |
| Discover | 6.99% to 24.99% | 3 to 7 years | $2,500 | $35,000 | Not specified |
| Rocket Loans | 5.970% to 29.99% (0.30% AutoPay discount included) | 3 to 5 years | $2,000 | $45,000 | 540 |
How We Chose These Lenders
This list does not represent the entire market. We began by analyzing the most commonly reviewed and searched-for debt consolidation loan rates. We only included lenders that offered loans marketed specifically as debt consolidation loans. However, it’s worth noting that other lenders offer personal loans that can be used for debt consolidation purposes too. Then, we cut out any lenders based on the following criteria:
- We eliminated lenders that don’t make it easy to find essential loan information like APRs, fees, minimum and maximum loan amounts, and available loan terms on their websites without entering an email or other personal information. Many lenders prominently display this information on their sites, making it easy to compare to other lenders. If you are in the market for a debt consolidation loan, we’d recommend a transparent lender that doesn’t require personal information for a rate comparison.
- We ruled out any lenders whose max APR exceeds 30%. Since the goal of a debt consolidation loan is to consolidate your existing high-interest debt into a single loan with a lower interest rate, we believe that it makes sense to feature lenders whose average interest rates are lower than the average credit card interest rate. Keep in mind that the rates listed on lender websites are only general ranges with the minimum and maximum rates. The rate you qualify for will likely fall somewhere between and will depend on factors like your credit score and loan term. The only way to know the exact rate you’ll get is to prequalify or apply for a loan.Â
- Our list only features direct lenders rather than intermediaries or loan marketplaces. We also ruled out credit unions, which have unique membership requirements and limit the number of people who could easily consider them for a loan. Credit unions can offer competitive rates to those who qualify; check your local area or use a credit union locator to compare rates.
- Also, none of these lenders charge any fees or penalties for early payments or otherwise paying off your loan early. We don’t think you should ever have to pay a fee to get out of debt faster. We will never recommend a personal loan that includes such a fee or penalty.
- Finally, we eliminated any lenders that did not have an A rating or higher with the Better Business Bureau.Â
The above rates and loan information is accurate as of September 27, 2021. The NextAdvisor editorial team updates this information regularly, though it is possible APRs and other information changed since it was last updated. Some lenders may offer a rate discount if you pay with AutoPay. If the advertised rates include an AutoPay discount, it will be clearly marked. Also, some loan offerings may be specific to where you live. Keep in mind that the longest loan terms and largest loan amounts may only be available to borrowers with the best credit.
Lender Overview
LightStream
Overview: A division of Truist Bank, LightStream offers fee-free debt consolidation loans with no fees for borrowers with good to excellent credit.
Pros: LightStream charges no fees on its loans and offers the Rate Beat program, which will offer a rate 0.1% lower than rates from competing lenders for the same loan term, with certain conditions. LightStream also offers a $100 Loan Experience Guarantee, where if you’re not satisfied with the service you received and explain why in a questionnaire, the company will send you $100.
Cons: LightStream requires you to go through the entire application process (including a hard credit inquiry, which can affect your credit score) to know the exact rate you’ll get, making it hard to shop around and compare with other lenders.
| LIGHTSTREAM | |
|---|---|
| Current APR | 2.49% to 19.99% (0.50% autopay discount included) |
| Loan Term Range | 2 to 7 years |
| Loan Amount | $5,000 to $100,000 |
| Prepayment Penalty | None |
| Origination Fee | None |
| Minimum Credit Score | None specified |
| Minimum Annual Income | None specified |
| Co-Borrower Allowed? | Yes |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
SoFi
Overview: SoFi offers no fees, a way to prequalify online, and other perks. But loan eligibility is limited to those with good credit scores and who are currently or soon-to-be employed or have another source of income.Â
Pros: SoFi charges no origination fees or late fees (although you’ll still be on the hook for interest on late payments). SoFi offers an unemployment protection program that will pause your payments and provide job placement assistance if you lose your job.
Cons: SoFi has stricter eligibility requirements than other lenders on this list. In addition to credit score requirements, you also have to be currently employed, have sufficient income from other sources, or have an offer of employment that starts within 90 days to qualify for a loan. Finally, SoFi loans are not available to residents of Mississippi.Â
| SOFI | |
|---|---|
| Current APR | 4.99% to 19.63% (0.25% AutoPay discount included) |
| Loan Term Range | 3 to 7 years |
| Loan Amount | $5,000 to $100,000 |
| Prepayment Penalty | None |
| Origination Fee | None |
| Minimum Credit Score | 680 |
| Minimum Annual Income | None specified, but employment or alternative income is required |
| Co-Borrower Allowed? | Yes |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
Payoff
Overview: Payoff by Happy Money specializes in debt consolidation loans and has lower credit score requirements than some other lenders on this list. You can also prequalify online without a hard credit check.Â
Pros: Payoff has a minimum FICO credit score requirement of 640, which is considered in the “fair†range by Experian. This makes Payoff more accessible to those who may not have good or excellent credit. Keep in mind, though, that credit score isn’t the only determining factor lenders use when deciding whether to grant you a loan. Payoff members also get free monthly FICO score updates.
Cons: You need to have at least three years of established credit to qualify for a Payoff loan. In addition, Payoff loans aren’t available in Massachusetts, Mississippi, Nebraska, and Nevada.
| PAYOFF | |
|---|---|
| Current APR | 5.99% to 24.99% |
| Loan Term Range | 2 to 5 years |
| Loan Amount | $5,000 to $40,000 |
| Prepayment Penalty | None |
| Origination Fee | 0% to 5% |
| Minimum Credit Score | 640, and three years of established credit |
| Minimum Annual Income | None specified |
| Co-Borrower Allowed? | No |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
Best Egg
Overview: Best Egg offers debt consolidation loans with a quick application process and the option to prequalify online. Like Payoff, Best Egg offers loans to borrowers with “fair†credit (640 and above).Â
Pros: Best Egg has a quick online application process, allowing you to receive funds in as little as one business day.Â
Cons: Although Best Egg offers loans to those with fair credit, getting the lowest APR advertised requires you to have an annual income of at least $100,000 and a minimum FICO credit score of 700.
| BEST EGG | |
|---|---|
| Current APR | 5.99% to 35.99% |
| Loan Term Range | 3 to 5 years |
| Loan Amount | $2,000 to $50,000 |
| Prepayment Penalty | None |
| Origination Fee | 0.99% to 5.99%; at least 4.99% for loan terms longer than four years |
| Minimum Credit Score | 640; 700+ for the lowest APR |
| Minimum Annual Income | $100,000 minimum individual annual income for the lowest APR |
| Co-Borrower Allowed? | No |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
Marcus by Goldman Sachs
Overview: Marcus, a subsidiary of Goldman Sachs, offers fee-free debt consolidation loans for borrowers with good-to-excellent credit.Â
Pros: Marcus offers an on-time payment reward where if you pay your loan on time and in full every month for 12 months, you can get an interest-free payment deferral for one month. Marcus also charges no origination fees, sign-up fees, or late fees.Â
Cons: Although Marcus doesn’t specify a minimum credit score needed to qualify for a loan, it does say you’ll need good or excellent credit (700-850) to get the lowest rates.
| MARCUS BY GOLDMAN SACHS | |
|---|---|
| Current APR | 6.99% to 19.99% (0.25% AutoPay discount included) |
| Loan Term Range | 3 to 6 years |
| Loan Amount | $3,500 to $40,000 |
| Prepayment Penalty | None |
| Origination Fee | None |
| Minimum Credit Score | None specified; borrowers with scores of 700-850 can get lower rates and larger loan amounts) |
| Minimum Annual Income | None specified |
| Co-Borrower Allowed? | No |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
Discover
Overview: This popular banking and credit card company also offers debt consolidation loans with no origination fees, flexible repayment terms, and same-day decisions in most cases.Â
Pros: Discover charges no origination fees, and no other fees, as long as you pay on time. Discover offers a same-day decision in most cases, as well as an option to pay off creditors directly. If you change your mind about needing the loan, you’ll pay no interest if you return the loan funds within 30 days.Â
Cons: You need a minimum household income of $25,000 to qualify for a Discover loan. In addition, you can’t use the loan to pay off a secured loan or directly pay off a Discover credit card.Â
| DISCOVER | |
|---|---|
| Current APR | 6.99% to 24.99% |
| Loan Term Range | 3 to 7 years |
| Loan Amount | $2,500 to $35,000 |
| Prepayment Penalty | None |
| Origination Fee | None |
| Minimum Credit Score | None specified |
| Minimum Annual Income | $25,000 household income |
| Co-Borrower Allowed? | No |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
Rocket Loans
Overview: Rocket Loans, a subsidiary of mortgage company Quicken Loans, offers debt consolidation loans for people with “poor†credit, although you may pay higher interest rates.Â
Pros: Rocket Loans requires a minimum credit score of 540, making it a viable option for people with “poor†credit. Rocket Loans offers online preapproval as well as same-day funding.
Cons: The maximum interest rate for Rocket Loans is on the high side of the spectrum for this list, although the minimum interest rate is on the low side. Keep in mind that the exact interest rate you’ll get depends on your credit score, and those with poor credit will typically get higher rates. Rocket Loans only offers two loan terms: 3 years and 5 years.Â
| ROCKET LOANS | |
|---|---|
| Current APR | 5.970% to 29.99% (0.30% AutoPay discount included) |
| Loan Term Range | 3 to 5 years |
| Loan Amount | $2,000 to $45,000 |
| Prepayment Penalty | None |
| Origination Fee | 1% to 6% |
| Minimum Credit Score | 540 |
| Minimum Annual Income | $24,000 |
| Co-Borrower Allowed? | No |
| Cosigner Allowed? | No |
| Unsecured Debt Consolidation Loans | Yes |
| Secured Debt Consolidation Loans | No |
What is Debt Consolidation?
Debt consolidation is when you consolidate multiple sources of debt — for example, credit cards, personal loans, payday loans, or medical bills — into a single loan. Some common reasons for consolidating debt include:
- Simplifying your finances by combining your debt into a single monthly payment
- Consolidating high-interest debt, like credit card debt, into a lower-interest loan
- Consolidating debt with a variable interest rate into a fixed-rate loan
- Reducing your monthly payment by getting a longer loan term
- Being able to budget better with fixed, monthly payments
The two most common ways of consolidating debt are balance transfer credit cards and debt consolidation loans. With a debt consolidation loan, you take out a loan to pay off your existing debt and pay off the new loan over a fixed time period. A balance transfer credit card comes with an introductory 0% APR, making it a good move if you qualify for one of these cards. Whether you use a balance transfer credit card or a debt consolidation loan, it is essential to make a plan to pay off the consolidated debt before the loan term ends or an introductory APR expires.
What is a Debt Consolidation Loan?Â
A debt consolidation loan is a type of personal loan taken out for the purpose of consolidating debt. Although many lenders offer products specifically called debt consolidation loans, they’re typically the same as personal loans and have the same loan terms and APRs, just under a different name. Some debt consolidation loans might offer benefits geared toward those looking to consolidate debt, such as the option to pay your lenders directly through the loan provider, saving you a step.Â
Debt consolidation loans typically fall into two categories: secured and unsecured. Secured loans require you to put up an asset — such as a home or car — as collateral, which the lender can seize if you default on your loan. Unsecured loans don’t require collateral. Because secured loans are less risky for the lender, they typically have lower APRs and credit score requirements. However, be careful when taking out a secured loan; if you fall behind on your payments, you could lose your collateral. In general, you want to avoid trading any unsecured debt for secured debt since that increases your risk.Â
Benefits of a Debt Consolidation LoanÂ
A debt consolidation loan can help you pay off debt and improve your financial health when used correctly. Some benefits of a debt consolidation loan include:
- Lower APR. If you have high-interest debt like credit card debt, you may be able to consolidate your debt into a loan with a lower APR. A lower APR means you’ll pay less interest over the life of the loan, and you may even be able to pay off your debt faster as a result. Keep in mind the exact rate depends on factors like your credit score and debt-to-income ratio, so you’ll need to prequalify for a loan or get a quote to see your rate. A debt consolidation loan is likely not a good idea if you can’t get a lower APR than your current one. Also, be aware that fees may cut into your savings; before taking out a debt consolidation loan, always crunch the numbers to see how much you can save.
- Regular, fixed-rate payments. If you have lots of credit card debt with no plan to pay it off, a debt consolidation loan can help. With a debt consolidation loan, you’ll make regular monthly payments with a fixed payoff date to help you budget better. You’ll also get a fixed interest rate, as opposed to a variable APR with credit cards, eliminating any surprise changes in interest charges.Â
- Streamline your finances. If you have multiple sources of debt, such as several credit cards or personal loans, combining them all into a single monthly payment can simplify your finances and help you better keep track of your payment deadlines. A single missed payment on a credit card or loan can result in hefty fees or a significant drop in your credit score. A debt consolidation loan can help you avoid missing payments by reducing the number of separate bills you need to pay.
Keep in mind, a debt consolidation loan will only help you if you go in with a plan to pay off the debt. Before taking out a debt consolidation loan:
- Calculate the interest and fees to make sure you’re saving money
- Build the loan payments into your budget
- Keep track of payment deadlines to make sure you don’t miss a payment.Â
Debt Consolidation Loan vs. Balance Transfer Credit CardÂ
One popular alternative to a debt consolidation loan is a balance transfer credit card. A balance transfer credit card is a credit card that offers a 0% APR introductory period, which typically ranges from 6 to 20 months. You can use a balance transfer credit card to consolidate debt by putting your existing debts onto the credit card and paying it off before the introductory period expires, thus paying no interest on the balance. (Though you may have to pay a balance transfer fee, usually around 3%.)
The biggest draw of a balance transfer credit card is paying off the balance before the introductory period expires and, consequently, paying no interest at all. Having a plan to pay off debt is even more important when using a balance transfer card, or you’ll be stuck with high APRs once the introductory period ends. The best balance transfer cards are typically available only to those with good or excellent credit, making them less accessible than personal loans for those with poor or fair credit.
| Personal Loan | Balance Transfer Credit Card |
|---|---|
| • Installment loan • Fixed interest rate for the loan term • More options for those with poor or fair credit • May charge an application fee, origination fee, prepayment penalty, and other fees |
• Credit card • 0% APR introductory period, then high variable APR • Fewer options for those with poor or fair credit • May charge a balance transfer fee, a monthly credit card fee, and other fees |
Alternatives to a Debt Consolidation Loan
In addition to balance transfer credit cards, there are several other alternatives to debt consolidation loans or personal loans for consolidating debt. These include:
Home Equity Loan or HELOC
You can tap into your home equity for immediate cash with either a home equity loan or home equity line of credit (HELOC). A home equity loan is a secured installment loan where you borrow a lump sum and pay it back, with interest, over a fixed period. A HELOC is a revolving line of credit that works like a credit card, where you can withdraw as much cash as you need (up to the credit limit) during the draw period and pay it back during the repayment period. Home equity loans and HELOCs use your home equity as collateral and may have lower rates than unsecured personal loans or credit cards. Be aware, though, that if you default on the loan, the lender could foreclose on your house.Â
Cash-Out Refinance
Similar to a home equity loan or HELOC, a cash-out refinance also lets you use your house as a means of accessing cash. The process just works differently. With a cash-out refinance, you take out a new mortgage with a larger value than your current mortgage, pay off your old mortgage with the money, and keep the difference as cash. Since mortgage rates are relatively low right now, a cash-out refinance may be a better deal than a home equity loan, HELOC, or personal loan.Â
Credit Counseling
If you’re struggling with debt, many credit counseling agencies offer services to help you make a debt repayment plan and get your finances back on track. Credit counseling is different from debt settlement, where for-profit companies negotiate with your creditors in an attempt to get them to settle your debt for less than the total amount owed. Debt settlement companies typically charge hefty fees for their services, and settling your debt for less than the original amount can severely hurt your credit score. Credit counseling is typically offered for free or for a small fee by nonprofit organizations.Â
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