If you have multiple sources of debt, your financial situation may feel a bit overwhelming — especially if you’re trying to pay off multiple loans with different balances, interest rates, and payment due dates. This is where debt consolidation can be handy.
You can use a debt consolidation loan to combine multiple sources of debt into one loan with a single monthly payment. Some debt consolidation lenders even offer to use your loan funds to pay your creditors directly.
If you can find a new loan with a lower APR and flexible terms than your current balances, then you stand to save money on interest and to make your life easier in one fell swoop.
Debt consolidation involves taking out a new loan that combines multiple sources of unsecured debts — like credit cards and medical bills — into a single loan with just one fixed payment. If you’re juggling multiple sources of debt, a debt consolidation loan could be a good idea to simplify the repayment process..
Debt consolidation loans are a type of personal loan you use specifically to pay off debts, and some lenders provide the option to pay your creditors directly. Your eligibility and the interest rate you’ll be offered largely depend on your credit score.
Having a higher credit score makes it easier to get a more favorable interest rate, but you can still qualify even if your credit score is less-than-stellar. Just keep in mind that you might have to settle for a higher interest rate.
These loans often come with lower APRs than other lines of credit like credit cards. With a lower APR, you’ll save money on interest charges over time and may be able to pay off your debt faster.
Related: Learn more about getting a personal loan on Credible.com
If you’re thinking of applying for a debt consolidation loan, it’s important to compare multiple lenders so you can choose the best loan for your needs. Consider the following Credible partner lenders that offer personal loans for debt consolidation:
Achieve offers interest rate discounts on debt consolidation loans when you opt to use your funds to pay creditors directly. Loan amounts range from $7,500 to $50,000 with repayment terms from two to five years.
Best Egg has a minimum credit score requirement of 600, making it a great option for borrowers with fair credit. You can borrow up to $50,000, with repayment terms from two to five years, and you may be able to secure a lower interest rate by enrolling in Direct Pay to pay your creditors directly.
Discover offers loan terms up to seven years, which can be attractive to borrowers who want to minimize their monthly payments. You can borrow $2,500 to $35,000, and Discover can release funds to you or your creditors as soon as one business day after approval.
Happy Money specializes in personal loans for credit card debt consolidation. You can borrow between $5,000 and $40,000 and repay the loan over two to five years. Plus, you can opt to have Happy Money pay your credit card issuer directly.
LightStream offers loan limits as high as $100,000, but you’ll need at least a 660 credit score to qualify. You’ll have two to seven years to repay a debt consolidation loan from LightStream.
Reach Financial is another lender that offers personal loans specifically for debt consolidation or credit card refinancing. You can borrow $3,500 to $40,000 and repay your loan over two to five years. Reach offers customizable monthly payments and hardship assistance, which lets you pause your payments for up to 90 days.
SoFi provides zero-fee debt consolidation loans and discounts for enrolling in autopay. Loan amounts range from $5,000 to $100,000 with repayment terms from two to seven years. SoFi also offers a variety of unique borrower perks, like free credit monitoring and personalized financial advice.
If you don’t need to borrow a lot of money, Upgrade debt consolidation loan amounts start at just $1,000 but range as high as $50,000. With a 560 minimum credit requirement, Upgrade is a great option for borrowers working toward building their credit.
Upstart is another worthy option for borrowers who are building credit. In addition to your credit score, Upstart considers your education and job history when determining if you’re eligible for a loan. This means you might be able to qualify even if you have a thin credit profile. You can borrow $1,000 to $50,000 and repay your loan over three to five years.
Debt consolidation only makes sense when it saves you money. As convenient as debt consolidation is, it’s not worthwhile if it makes your debt more expensive and hard to pay off. Here are some factors to keep in mind when shopping for a debt consolidation loan.
While all lenders have their own unique eligibility requirements, you’ll take the following steps to qualify for a debt consolidation loan:
If you’re ready to apply for a debt consolidation loan, follow these four steps:
- Check your credit score. Before you apply for a loan, it’s a good idea to know where your credit stands. You can check your credit report from each of the three major credit bureaus — Equifax, Experian, and TransUnion — at AnnualCreditReport.com. Make sure to check for any errors, like incorrect late payments or charge-offs, and dispute them with the appropriate bureau to potentially boost your score.
- Compare lenders. It’s important to shop around and compare as many different lenders as possible before submitting an application. Be sure to check not only APRs and repayment terms but also any discounts or fees the lender charges. Getting prequalified with multiple lenders will give you a more accurate picture of what rates and terms you’re eligible for.
- Submit your application. Once you choose the best loan for your unique financial situation, you’ll submit a formal application. You’ll likely need to provide personal information, such as your name and Social Security number, and financial documents, like recent pay stubs and tax returns.
- Get your funds. If you’re approved and want to accept the loan, you’ll sign and return a loan agreement so the lender can release your funds. The time to fund for personal loans can range from as soon as the same or next business day of approval to up to a week.
You can estimate how much your payments will cost each month by using a personal loan calculator.
When you apply for a debt consolidation loan, the lender will perform a hard credit inquiry to determine your eligibility. The hard credit check will temporarily reduce your credit score by a few points, but your credit will recover in just a few months.
On the other hand, a debt consolidation loan can be a useful tool for improving your credit. By taking multiple debts with varying due dates and rolling them into one loan with one payment to manage, you might find it’s easier to make your payments on time each month. Payment history accounts for 35% of your credit score, so making consistent on-time payments is a quick and easy way to boost your credit score.
Additionally, a debt consolidation loan can reduce your credit utilization by paying off your existing credit card balances. Your credit utilization ratio is the amount of credit you owe divided by your credit limit. For example, if your credit limit is $10,000 and your current balance is $3,000, your credit utilization rate is 30%. Because your credit utilization ratio makes up 30% of your credit, paying off your balances with a debt consolidation loan can bring up your score.
Taking out a debt consolidation loan may help put you on a faster track to total payoff, especially if you have significant credit card debt. You can also potentially save money from interest and fees from credit cards or other loans.
The key is to find a debt consolidation loan with a lower interest rate and fewer fees than you’re currently paying. Lower interest charges and fewer fees may make it easier to pay off your debt faster.
If a debt consolidation loan isn’t right for you, here are other options to help pay off your debt:
Before you apply for a debt consolidation loan, it’s a good idea to consider all of your options and find a loan that will best suit your unique financial needs.
Related: Learn more about getting a personal loan on Credible.com