Best debt consolidation loans of May 2024

Debt consolidation is the process of paying off your debts with a new loan, ideally with a lower interest rate than what you're currently paying. You can lower your monthly payments, reduce interest costs, avoid compound interest, and improve your credit score by consolidating or refinancing debt. Plus, you can simplify your monthly budget by replacing several monthly payments with one.

Personal loans are often used to consolidate debt since they have lower average annual percentage rates (APRs) compared to credit cards, according to the Federal Reserve  — 12.49% for two-year personal loans compared to 21.59% for credit cards.

Here’s what to know about getting a debt consolidation loan, including where to find one, how to qualify, and alternatives.

Compare debt consolidation loan rates

Best debt consolidation loans

The best debt consolidation loans offer low interest rates, a variety of repayment options, and low or no fees. Some lenders will even pay your creditors directly, which streamlines the debt payoff process. You can use these loans to pay off credit card debt, medical bills, or other financial obligations.

SoFi: Best overall

Upgrade: Best for fair credit

Discover: Best for no origination fees (and low rates)

Universal Credit: Best debt consolidation loans for bad credit

Best Egg: Best for high close rates if pre-approved

LendingClub: Best online experience

Upstart: Best fast personal loans for all credit types

Happy Money: Best for consolidating credit card debt

Methodology

We evaluated the best debt consolidation loans based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Our team of experts gathered information from each lender’s website and customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date. Read our full lender rating methodology for more information.

What is debt consolidation?

Debt consolidation combines multiple high-interest debts (such as credit card balances) into one monthly payment. It has a few distinct benefits: 

1. You may be able to lower your overall APR: If you can qualify for a loan with an APR lower than what you pay now, you could save hundreds or even thousands of dollars in interest over the course of the loan.
2. Lower your monthly payment by consolidating or refinancing debt: A lower APR often translates into a lower monthly payment. But even if you can't get a lower APR, it could make sense to consolidate at a higher APR for a longer loan term in order to secure a payment you afford.  
3. Improve your credit score: A positive payment history is the most impactful thing you can do to improve your credit, contributing 35% to your FICO score. However, if you pay off credit cards with a debt consolidation loan, you can also increase your available credit, which can contribute up to 30% to your credit score. Since credit cards report your balances monthly to the bureaus, paying them off can result in impressive credit score gains, almost overnight. 

How does debt consolidation work?

Debt consolidation works by paying off your debt with funds from a new loan, such as a personal loan. You can get a personal loan from a bank, online lender, or credit union, and they're typically unsecured, which means you don't need to provide collateral to get the loan.

Debt consolidation loans usually have interest rates between 6% and 36%, with repayment terms between 1 and 7 years. Interest rates can be fixed or variable, depending on the type of loan. Keep in mind that a variable interest rate can go up over time, which could cause your monthly payment to rise with it. (Personal loans for debt consolidation tend to have fixed rates.)

Check out: How does debt consolidation work?

Debt consolidation calculator

How to compare debt consolidation lenders

To find the best debt consolidation loan, compare multiple lenders according to these key criteria.

• APR: The annual percentage rate includes the interest rate and any upfront fees. Choose a lender with lower APRs to save yourself money over the long term. Also, check the rates offered and compare them to what you’re paying now, making sure you know whether your APR would be fixed or variable. Variable rates are subject to change over time.
• Fees: Some lenders charge origination fees, which are generally taken out of your loan amount before you receive the funds, or application fees. Look for a lender that offers low or no fees to save the most on your loan.
• Repayment terms: Most personal loans have repayment terms of 1 to 7 years. Shorter repayment terms tend to mean a higher monthly payment, but the overall interest costs are generally lower. Longer repayment terms, meanwhile, may help your payments fit more easily into your budget, but you could end up paying more in interest over time.
• Loan amount: Check your lender’s minimum and maximum loan amounts to make sure they fit your needs. Common loan amounts range from $600 to more than $100,000, depending on the lender.
• Minimum credit score: Your credit score may affect the loans you qualify for, as well as the rates you receive. Check each loan’s minimum credit score requirements to make sure it’s an option for you.
• Time to fund: If you need your funds quickly, many lenders can fund your loan as soon as the same or next business day.
• Customer reputation: Don’t forget to check out customer reviews, too, to check for any red flags like poor customer service or hidden fees.

 How to apply for a debt consolidation loan

Follow these steps to find and apply for a debt consolidation loan.

1. Check your credit report: Before you begin rate shopping, check your credit report. This will give you an idea of what lenders will see when you apply and lets you know whether to fix any errors that could be damaging your credit. You can also check your credit score, whether it’s through your credit card company or another service. You can get a free credit report online from AnnualCreditReport.com. This website pulls your reports from all three major credit bureaus; Equifax, Experian, and TransUnion.
2. Determine how much you need: Determine how much money you require to pay off your debts. Try for the least amount necessary, since you’ll have to pay interest on every dollar you borrow.
3. Shop for rates: You can usually prequalify with debt consolidation lenders without affecting your credit score. Prequalifying lets you see what rates, loan amounts, and repayment terms you might qualify for. It is not an offer of credit, however, so your final rate could differ once you formally apply.
4. Apply: After comparing your options, fill out an application with your chosen lender. Most online lenders offer electronic applications, or you can apply in person with your local bank or credit union. You may need to provide documentation such as pay stubs, bank statements, or W-2s, and you may also need your driver’s license and Social Security number to verify your identity. At this point the lender will conduct a hard credit inquiry, which will lower your score by a few points for up to a year.
5. Receive the funds: If you’re approved, your lender will provide you with the funds, which you can use to pay your creditors, or the lender will pay them directly. Don’t forget to set up automatic payments or create a reminder to pay your new loan on time.

Debt consolidation loan alternatives

Here are some other options you can consider to pay down your high-interest debt.

Create a debt snowball (or avalanche)

Instead of borrowing the funds to pay off your debts, do it yourself with careful budgeting and saving.

DIY debt payoff usually takes one of two forms. The first is the so-called debt snowball method: While making minimum payments on all of your debts, apply any extra funds toward your smallest debt first. Once you’ve eliminated it, use those freed-up funds to pay the next-smallest debt, until all your debts are gone. This method won’t save you the most on interest, but it can work well for those who are motivated by smaller, quicker wins.

The second method is the debt avalanche: While once again making minimum payments on all of your debts, apply all extra funds toward the debt with the highest interest rate, then, as it is paid off, use those freed-up funds to work on the next debt in line. This method can save you the most in interest, but it generally takes longer to see results.

Use a 0% credit card

Another way to consolidate your debt is to transfer your balances to a credit card with a 0% APR promotional period. Doing a balance transfer will usually incur a fee — a percentage of the balance, such as 3% — so keep that cost in mind. Also, make sure you can budget for the monthly payment. 0% interest periods don't last forever. If you can't pay off the transferred balance by the time it expires, you'll start paying the card's standard APR on the remainder — which could be over 30%.

Tap into your home equity

When you need funds for debt payoff, tapping into your home equity may be an option. You can do this via a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. Whichever method you choose, you’ll use the proceeds to pay off your debts. 

But home equity-based loans can take a month or more to get approved for. And since the payment term could be up to 30 years, you could end up paying more in interest — over the life of the loan — relative to other options.

Debt relief options

If you can't qualify for a loan to consolidate your debt or can't afford your monthly payments, you may need to look into debt relief. Debt relief means you get some of the debt forgiven, or you can pay it back at a lower interest rate negotiated by you or on your behalf. 

Settle or negotiate with your creditors

If you've fallen behind on payments or think you will, try negotiating with your creditors. Explain your financial hardship and ask whether they’ll adjust your debts, work out a payment plan, or settle for a lesser amount.

But just like missing payments, debt settlement can damage your credit score, and that damage can stay on your report for up to seven years. Also, be wary of debt settlement companies that push you to stop making payments. This could leave you open to more harm to your credit and even potential legal action. You may be better off using a reputable, nonprofit credit counselor or agency to negotiate a debt management plan (DMP) with your creditors. You can find a list of approved credit counseling agencies from the Department of Justice.

Consider bankruptcy as a last resort

As a last resort, you may consider bankruptcy. Bankruptcy can discharge your debts, or create a payment plan for them, depending on the type you file. Just know that bankruptcy stays on your credit report for seven to 10 years, and can damage your score significantly (though your score may already be suffering if you're considering it). 

Use the funds you free up from filing bankruptcy to start rebuilding your credit immediately. You may be able to get a secured credit card not long after bankruptcy, and within a few years, could even apply for a mortgage. But lenders will be much more careful in lending to you — which means you'll pay higher rates for years, and may not be approved at all, especially if you've continued to miss or make late payments.

Debt consolidation FAQ

What are the pros and cons of debt consolidation?

Debt consolidation can help you pay down your debt, save money by lowering your interest rate, and simplify your finances. However, consolidating your debt may mean it takes longer to pay off, and sometimes you could pay more in fees and finance charges than if you had paid off each debt individually. Compare how long it would take to pay off your debt and how much you’ll pay in interest for each method before you decide.

Does debt consolidation hurt my credit?

Yes, debt consolidation can temporarily lower your credit score when you first apply for a consolidation loan, home equity loan, mortgage refinance, or balance transfer credit card. That’s because lenders will run a hard credit check, which can drag your score down about five points or so, although it depends on your credit profile. On the plus side, consolidating your debt may also bring your score up — and quickly — especially if you consolidate credit card debt, which can significantly reduce your credit utilization.

Can I get a debt consolidation loan with bad credit?

You may be able to qualify for a debt consolidation loan with bad credit, but you'll have fewer options and it could cost you more. Lenders usually offer their best rates to borrowers with good or excellent credit, so if yours is fair or poor, you may only qualify for the highest rates. It’s important to compare the APR of a debt consolidation loan to what your current creditors are charging you.

Where can I get a debt consolidation loan?

The best places to find debt consolidation loans are banks, credit unions, and online lenders. These companies can offer low interest rates and low or even no fees. And don’t forget to get multiple quotes so you can compare lenders — it’s the best way to find a good deal on a loan.

Related articles:

• Types of debt consolidation loans
• How to consolidate debt
• Ways to consolidate credit card debt
• How a personal loan affects your credit score
• Best personal loan rates
• Best online loans