A debt consolidation loan is a path to relief for a lot of people struggling to manage credit cards and other high-interest debt.
Debt consolidation replaces your existing debts with a single loan, usually with more favorable terms, like a lower interest rate that’ll save you money, or a lower monthly payment and longer repayment period that gives you more breathing room.
These loans are a common part of savvy debt payoff strategies, because they can often help you save money, pay off debt faster or both. If you feel like you’re drowning in debt, they could extend the time it takes you to pay and take the stress off of keeping up with monthly payments.
Debt consolidation loans are available from lenders as personal loans, sometimes marketed specifically as “debt consolidation loans” and sometimes simply as personal loans.
We’ve reviewed some of the top personal loan lenders online to help you find the best debt consolidation loans available for your financial situation and goals.
Best Debt Consolidation Loans at a Glance
APR with Autopay
Min. and Max. Loan Amounts
8.93% – 35.93%
$1,000 – $50,000
36 to 60 months
5.99% – 24.99%
$5,000 – $40,000
2 – 5 years
3.49% – 19.99%
$5,000 – $100,000
Up to 7 years
Credible Personal Loans
3.49% – 35.99%
$600 – $100,000
1 – 7 years
5.22% – 35.99%
$1,000 – $50,000
3 or 5 years
5.74% – 21.78%
$5,000 – $100,000
2 – 7 years
5.75% – 31.44%
$5,000 – $50,000
5.94% – 35.97%
$1,000 – $50,000
24 – 84 months
5.97% – 29.99%
$2,000 – $45,000
36 or 60 months
5.99% – 24.99%
$2,500 – $35,000
36, 48, 60, 72 or 84 months
6.99% – 19.99%
$3,500 – $40,000
36 – 72 months
7.04% – 35.89%
$1,000 – $40,000
3 or 5 years
7.95% – 35.99%
$2,000 – $40,000
3 or 5 years
Starting at 7.99% – 25%
$1,000 – $35,000
12, 18, 24 or 36 months
9.95% – 35.99%
$2,000 – $35,000
24 – 60 months
9.99% – 35.99%
$2,000 – $36,500
24 – 60 months
Funding within one day
Fixed interest rate
Rate discounts for debt pay off
Designed for credit card payoff
Borrow from community-based lenders
Loans up to $40,000
Loans available for low credit scores
Compare rates from top lenders
Loans for poor credit available
Loan amounts as low as $600
AI-powered lending for partner banks
Considers more than your credit history
Loan amounts as low as $1,000
Access to events and perks
Discounts for SoFi clients
Powered by Provenance blockchain
0% to 5% origination fee
Checking, credit and loans in one platform
No prepayment penalties
Next day funding
Same day funding
No prepayment penalties
No fees (except late fees)
Repayment assistance options
Free FICO credit score
Skip-a-payment reward for on-time repayment
Customize your monthly payment
Borrow up to $40,000
Funding within 48 hours
No prepayment penalty
No prepayment penalty
No SSN or U.S. citizenship required
No prepayment penalty
No U.S. credit history required
Minimum credit score 580
Not available in New York
No co-sign loans
Not available in Nevada or West Virginia
How Does a Debt Consolidation Loan Work?
A debt consolidation loan is a type of personal loan you take out to pay off existing debts, and it’s most commonly used to pay off high-interest credit card debt.
The reason this is beneficial, even though you still have to repay the same amount of debt, is that personal loans come with much lower interest rates than most credit cards. You might have a few credit card balances accumulating interest at around 16% to 25%, while personal loans usually come with interest rates closer to 5% to 12%.
A “debt consolidation loan” is just a personal loan marketed specifically for debt payoff. They work exactly like personal loans on paper, except that many lenders send loan funds directly to creditors for you. If they don’t, you could still take out a personal loan and use the funds to pay off debts yourself.
To make a debt consolidation loan worth it, you should receive at least one of these benefits:
A lower interest rate (lower than the average of the debts you’re paying off).
A lower monthly payment than the total of what you pay now. This could come with a higher interest rate and/or longer repayment period, but it might be what you need for now to stay above water. You can always refinance in the future for a better rate.
Quicker payoff. A debt consolidation loan might come with a higher monthly payment, but if you can manage it, that could simplify your debt management, save you on interest and get you out of debt faster.
Longer repayment. If you’re consolidating or refinancing existing loans with short repayment terms, a new loan could extend the time you have to repay by lowering your monthly payment. You’ll likely pay more in interest this way, but it could ease your monthly commitments.
How to Choose a Debt Consolidation Loan
Before you commit to any debt consolidation option, shop around to see what lenders can offer you. Your available terms could vary quite a bit from lender to lender because of how they evaluate your credit history and what kind of borrowers they’re targeting.
Online lending marketplaces like Credible or Fiona make it easy to quickly see and compare pre-qualified offers from lenders side-by-side, so they could save you some time.
To choose the loan that fits your financial goals, consider these features:
Interest rate: If your main goal is to save money, look for a debt consolidation loan with an interest rate that’s lower than the average rate on your existing debts. Lenders typically offer lower interest rates with shorter repayment periods, so play with those factors to land on a rate that works for you.
Monthly payment: Primarily, you need a monthly payment you can pay comfortably every month, considering your existing commitments. If you’re overwhelmed by your current debt payment, refinancing or consolidating into a loan with a lower monthly payment could offer some relief. It’ll probably come with a later payoff date, which could mean you pay more in interest over time — but that lower bill could make the difference between paying on time or not.
Repayment term: This is the number of months or years to repay the loan. A longer term (or period) means lower monthly payments, but often comes with a higher interest rate and will mean more time for interest to accumulate. A shorter repayment term means a quicker payoff date, so if your goal is fast debt elimination, look for lenders that offer one- or two-year terms.
Fees: Many of the lenders we’ve listed charge no fees, but some still charge an origination fee, which lops off a small percentage of your loan up front. Some companies also charge late payment fees and a few companies even charge a prepayment penalty, which means you could pay extra if you pay off the loan early.
Debt Consolidation Loan Costs to Consider
Debt consolidation loans come with the typical costs included with any personal loan, including:
Interest: This is the extra you’ll repay on top of the amount you borrow. Debt consolidation loan rates could be as low as 3.5% or as high as 35.99%, depending mostly on your credit. Avoid loans with a higher interest rate than your existing debt unless consolidation feels like your only option to meet your financial goals.
Origination fees: A lot of lenders charge a fee up front just for making you the loan. It’s usually charged as a percentage of the loan amount, around 2% or 3%, and it’s deducted from the initial funds you receive. If your lender charges an origination fee, take that into account to make sure you get the funds you need to cover your debt balances.
Late fees: Some lenders charge a late fee if you make a payment past the monthly due date. The fee is typically a percentage of the payment due or a flat fee. Take note of these in your loan agreement if your financial situation changes and you’re unable to make payments on time. You might be able to avoid them by working with the lender to move your due date or ask for a deferment period.
Prepayment penalties: Few lenders of debt consolidation loans charge these anymore, but double-check before you sign an agreement. Prepayment penalties are fees you owe if you repay ahead of schedule — either paying your loan balance off early or getting too far ahead on your monthly payments.
Debt Management vs. Consolidation vs. Refinancing
As you seek options to tackle your debt, you’ll probably come across information and services for debt management, debt consolidation and debt refinancing. They all have similar aims, but they’re not the same things.
Debt management is a service offered by nonprofit organizations to get difficult debt under control. You work with a debt counselor to make arrangements with creditors, like adjusted repayment plans or reduced balances, and you make a single monthly payment to the organization, which pays creditors on your behalf.
Debt consolidation is a personal loan or balance transfer credit card that replaces existing debt. You use a debt consolidation loan to pay outstanding balances, so you only owe money to a single lender each month, ideally with a lower interest rate or lower monthly payment.
Debt refinancing is a way to take an existing loan and repackage it with different terms. Like consolidation, you basically replace one loan with another, but refinancing focuses on just one loan, rather than a plethora of debt accounts. You can often go back to your existing lender to ask for better terms — because, say, your credit has improved or the prime rate has gone down — or shop around for other offers.
Alternatives to Debt Consolidation Loans
Debt consolidation loans aren’t the only avenue for tackling your debt. Consider these other options and their effect on your credit score and financial goals before committing to a loan:
Balance transfer cards: These credit cards let you transfer the outstanding balance of an existing card or several, so you pay it off to the new creditor. It’s a way for a credit card company to entice you away from a competitor. Balance transfer cards usually offer an interest-free period of about a year. If you expect to be able to repay your credit card debt within that period, this is a great way to save on interest. If you don’t repay within that period, though, back interest usually comes due, and your balance could become less manageable than you expected.
Refinancing: If you have a single loan with unfavorable terms, you could return to the lender and ask to refinance. This could get you a lower interest rate or different monthly payment, depending on your financial situation and needs.
Debt forgiveness: A debt management plan usually comes with some amount of forgiven debt, which could offer a tremendous amount of relief. You might also be able to negotiate a reduced repayment amount on your own directly with your creditors. This kind of settlement usually shows up on your credit report as a negative mark.
Deferment: Check the terms of your existing debt to see if your lender offers deferment or other flexible repayment options. You may just need a month or two off of monthly payments or interest to get back on track, and that could save you the trouble of applying for a whole new loan.
What Is the Smartest Way to Consolidate Debt?
Two main options exist to consolidate credit card debt: a debt consolidation loan or a balance transfer card. Each has pros and cons, and which is best for you depends on your financial situation and goals.
A debt consolidation loan usually comes with a longer repayment period and a lower interest rate than a balance transfer card. The loan pays off your existing debts, and you just owe one monthly payment to the new lender. Ideally, you’ll lower your interest rate or monthly payment, depending on your goal.
A balance transfer card absorbs the balance of other credit cards and lets you continue to spend on the new balance. They often come with a year or so of no interest for the transferred balance, so this could be a strategic way to save money if you’re paying off debt fast. Back interest usually comes due at the end of the introductory period, though, so this becomes a costly option if you don’t pay your debt down fast.
A debt consolidation loan is probably a better option in most cases, because it sets you up for slower, steady debt payoff at a monthly payment you can manage and an interest rate that hopefully saves you money.
A balance transfer card is a smart strategy if you’re focused on quick debt payoff and are pretty certain you’ll eliminate your balance within the next 12 months. It can, however, be a risky move if you don’t have that solid plan in place to prioritize debt payoff for the near future.
How Does Debt Consolidation Affect Your Credit Score?
Debt consolidation could lower your credit utilization and create a positive line on your credit report, which could improve your credit score over time.
Here’s how it works:
Credit utilization: Paying off your credit card debt — even if you take on a loan to do it — lowers the amount of your available credit you’re using, called your credit utilization. Lower utilization is better for your credit score.
Credit report: Making your loan payments on time or ahead of time throughout the life of the loan creates a positive line on your credit report, which can help to balance any negative marks you’ve accumulated with unpaid credit card debt.
Debt consolidation could also impact your credit score negatively in these ways:
New credit inquiry: When you apply for a loan, the lender does a hard credit inquiry, which shows up on your credit report as a request for credit. Your credit score will probably take a temporary dip because of that, but that effect doesn’t tend to last beyond a few months.
Payment history: Paying your loan on time will be good for your credit score — but if you don’t make payments on time or you default on the debt consolidation loan, it’ll hang out on your credit report for about seven years and hurt your score.
How to Protect Your Credit When You Consolidate Debt
Debt consolidation can be a smart strategy as part of a plan to pay off your debt and improve your credit score. Replacing high-interest balances with a lower-interest loan is a smart step toward eliminating debt, which is good for your credit score.
But be careful not to make these common mistakes when you consolidate debt — they could end up hurting your credit score:
Don’t close your paid accounts. Leave your credit card accounts open even after you pay off the balances. If you want to avoid using the cards again, cut up the physical cards, remove the virtual cards from your digital wallet and erase the card numbers from your browser. Keeping old accounts open ensures you have mature accounts in your credit history, and the unused balances help reduce your credit utilization.
Don’t skip monthly payments. Plan ahead to take out a loan with monthly payments you expect to be able to absorb. If you’re coming up on a monthly payment you won’t make on time, contact the lender ASAP to negotiate a different due date, deferment or other flexible repayment option. Missing monthly payments dings your credit report and will certainly lower your score, in addition to racking you up more debt in fees and interest.
Don’t add more credit card debt. If you can avoid it, don’t use credit cards while you repay your debt consolidation loan. Or use them with careful intention, and repay your purchases frequently (like, daily) to avoid carrying a new balance. This lets you concentrate on paying off just the one debt, so you can work toward financial relief.
Keep on Refinancing
You don’t have to stop after one debt consolidation loan.
After you’ve made on-time payments for a year or so, check your options again to see if you could refinance to even more favorable terms. Your positive payment history and reduced credit card debt can very likely improve your credit score and expand your options for better loans.
Knowing this is an option down the road could give you some relief now, too: You may need to take out a high-interest loan with a long repayment term because you have bad credit now. Consolidating your debt this way might be your best path to getting out from under a mountain of stressful and confusing debt. But you don’t have to stick with those terms forever.
As your credit score improves and your debt balance goes down, consider refinancing the loan in the future to get better terms that’ll save you money and help you reach your goals even faster.
Frequently Asked Questions (FAQs) About Debt Consolidation Loans
We’ve rounded up answers to some of the most commonly asked questions about debt consolidation loans.
Plenty of lenders make loans available for borrowers with bad or fair credit scores in the high 500s to mid 600s. Just watch out for the interest rate. It doesn’t usually help you to replace your existing debt with a loan with a higher interest rate. And a monthly payment you can’t pay won’t improve your situation, either.
The higher your credit score, the better odds you’ll always have for landing a loan and getting favorable terms. But you don’t necessarily need a good or excellent credit score to get a debt consolidation loan.
Your credit score can be hurt temporarily by a debt consolidation loan. It can also hurt your credit utilization score. However, meeting the payment deadline on the consolidation loan will help your score over time.
Debt consolidation loans are most helpful for people with credit card debt. The consolidation loans often have a lower interest rate than credit cards which means more of your money is going to pay down the loan amount. They also work if you meet the payment deadline.
Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.