Control debt and simplify monthly payments with a debt consolidation loan.
It can be hard enough to manage debt without having to keep track of multiple creditors. A debt consolidation loan could help you streamline those multiple debts into a one fixed payment, often under a lower rate.Understand more about how consolidation frees up your budget, the types of debt you can consolidate and what to consider before you take it on. By learning how to compare your options, you can get the lowest rates and longest terms you’re eligible for — and peace of mind that comes with more manageable debt.
Prosper Personal Loans
You could borrow up to $35,000 for a variety of purposes, with rates starting from 5.99%.
- Recommended Credit Score: 640 or higher
- Minimum Loan Amount: $2,000
- Maximum Loan Amount: $35,000
- Loan Term: 3 or 5 years
- Turnaround Time: 1-3 business days
- Simple online application process
- No prepayment penalties
How do I consolidate my debt with a personal loan?
Taking out a personal loan to consolidate your debt lets you put all of your debt in one place as you work to pay off the loan, often at lower rates. One company, one monthly repayment: no more wondering who to pay first.
The biggest advantage to a personal loan for consolidating your debt is saving on interest. If you have several credit cards for example, each with an APR of 12% or higher, you’re spending a lot more than you need to. You can save significantly by paying down that debt on personal loan with a 7% interest rate. With a lower interest rate and only one balance to keep track of, it may be easier to wipe out your debt for good.
How debt consolidation works:
Compare personal loans for debt consolidation
A selection of top personal loan lenders
Use this table to compare the interest rates, loan amounts and eligibility requirements of top online lenders.
A selection of brokers
One way to make sure you’re getting the best rate is to let a broker find a competitive rate for you.
5 tips for consolidating debt at a lower interest rate
How can I find the right loan to consolidate my debt?
Finding the right loan to consolidate your debt requires you to compare different features of personal loans for debt consolidation. You can consider the following:
- Eligibility. Many lenders provide debt consolidation loans only to individuals with good or excellent credit scores. You usually have to meet additional eligibility criteria such as a low debt-to-income ratio, a minimum annual income and minimum length of credit history.
- Interest. Loans come with interest, which lenders commonly advertise as annual percentage rate (APR). Bear in mind that even a seemingly small difference in percentage can have a significant effect on the total interest payable, especially if you’re borrowing a large sum. For this reason, be sure to find a low-interest personal loan. To save money on interest after you’ve taken out a loan, you can pay it off early.
- Fees. Prepare to pay fees in different forms. Examples include loan establishment fees, late fees and prepayment penalties.
- Loan term. How long you take to repay your loan contributes to how much you pay as interest. While a longer loan term would have lower payments, it would also have you paying more interest.
Ava wants to get out of debt for good
Ava’s fed up with the high interest rates she’s currently paying on her credit card and personal loan. Her credit card, issued by her primary bank, has a $11,500 balance with a 21.99% APR. She took out a $6,000 personal loan to pay for relocation expenses when she moved cross-country. But she didn’t get the best deal on it — she pays over $200 each month at an 18.25% APR for a 3-year term.
Ava wants to get out of debt faster but finds that even a $700 monthly payment on her credit card isn’t reducing the balance fast enough because of the compounding interest. She decides to search the Web for options and learns about debt consolidation loans. Because her credit score had improved since she last applied for credit, she knew she’d qualify for a more competitive interest rate now.
After comparing her options, Ava decided on an online personal loan and completed the application in just several minutes. She was approved for a $21,500 debt consolidation loan at a 5.99% APR for a 3-year term. The money was deposited into her bank account within two business days after approval. Ava now makes one monthly payment of $653.97 and will be debt-free in three years.
What kinds of debt can I consolidate?
Make sure that when you’re applying for a personal loan that the APR is not higher than what you’re already paying. The interest rate is where you will see the savings. People generally consolidate these three kinds of debts:
- Credit card debt. Having multiple credit cards requires that you keep track of making timely payments towards each, which can be cumbersome. Many credit cards also charge noticeably high APRs.
- Personal loans. If you have multiple personal loans, you can think about bringing them under a single umbrella. Depending on your existing financial situation and creditworthiness, you may qualify for a more competitive interest rate on a debt consolidation loan.
- Private student loans. While consolidation of federal student loans isn’t common, you can usually consolidate private student loans.
- Business loan debt. Some business lenders offer debt consolidation loans as well to help you improve your cash flow by simplifying multiple payments into one.
Lower payments don’t necessarily mean you’re paying less. In fact, you could end up paying more if you consolidate your debt into a loan with a longer term. You can avoid falling into this trap by considering how much net interest you’re going to pay when comparing lenders.
It’s also a good idea to come up with and stick to a budget for your new repayment plan. If you were having trouble making payments before, there’s a chance that problem might not go away. Be realistic about what you can afford.
What other options do I have for debt consolidation?
The best type of debt consolidation option depends on the kind of debt you have and how much you owe. Your primary alternatives include:
- Credit card balance transfer. If you have existing credit card debt that comes with high interest, you can look into getting a balance transfer credit card. These cards charge little to no interest on balance transfers during the introductory period, letting you consolidate credit card debt easily.
- Secured loans and lines of credit. There are lenders that let you borrow against the equity you’ve built in your home, the value of your car or a certificate of deposit. You may be able to get a lower interest rate with a secured loan since the lender is taking on less risk. The downside is you risk losing your asset if you cannot repay the loan in a timely manner.
- Student loan consolidation. There are several lenders who specialize in student loan refinancing, including SoFi, LendEdu and Credible. If you’re only consolidating student loan debt, this may be an option to consider.
Frequently asked questions about debt consolidation
What is debt settlement?
Can I get a debt consolidation loan if I have bad credit?
Can I transfer my existing debts to a loan that a friend or relative takes out?
Can I pay off a debt consolidation loan early?
Most likely, yes. Many lenders offer loans with no prepayment penalties. If you’re interested in that benefit, be sure to check that the lender you’re considering offers it.
Will a debt consolidation loan hurt my credit score?
Consolidating your debt is a financial move that’s likely to increase your credit score. As you pay down your debt faster, your credit utilization ratio will go down, thus enhancing that factor in your credit score. Also, you’re establishing more payment history and possibly diversifying your credit mix — both of which are also factors that go into your credit score.
Keep in mind that the lender will likely conduct a hard check on your credit report before finalizing your loan offer. A hard credit check could cause a temporary ding in your credit score.
What's the difference between debt relief and debt consolidation?
Debt relief is the forgiveness of part or all of an existing (usually overdue) balance. Debt consolidation doesn’t change your loan principal amount but rather uses a new loan to simplify your payments and possibly save you money on interest.