Estimated loan offers for $10,000
Paying off debt is the first step toward a healthy financial life. A debt consolidation loan may help you take that step.
With a debt consolidation loan, a lender issues you a single personal loan that you use to pay off your other debts, such as medical bills or balances on high-interest credit cards. You’ll pay fixed, monthly installments to the lender for a set time period, typically two to five years. The interest rate you receive depends on your individual credit profile, and it usually does not change for the life of the loan.
If you’re having a hard time keeping up with multiple payments, it’s a strategy worth considering.
Taking out a personal loan is not the only way to simplify your finances, however, and it may be more expensive than other options. If you decide to take out a debt consolidation loan, look closely at the fees a lender will charge, what kind of support it offers (such as financial education or payment flexibility) and whether you can use a co-signer to get a lower interest rate.
We’ve identified lenders that make debt consolidation easier below.
- Lenders that don’t charge an origination fee
- Lenders for financial discipline
- Lenders that allow co-signers
A loan vs. a credit card to consolidate debt
If your credit is good, you can apply for a 0% interest credit card, which could save you quite a bit of money if you pay off your debt within the promotional period. But a personal loan offers some advantages of its own.
“The big advantage to a personal loan is that it forces you to pay off your debt over time,” says NerdWallet personal finance columnist Liz Weston. “If you’re disciplined enough to pay off that low-rate card before the teaser rate expires, that’s one thing. If you’re not sure you can, though, the personal loan may be the better bet.”
In addition, a personal loan may improve your credit score by moving credit-card debt over to the installment loan column. The way credit scores are figured, borrowers who use all or most of the available credit on their cards get hit with a significant penalty.
Why not to choose a personal loan
A personal loan to consolidate debt makes sense only if you receive a lower interest rate than you have on your existing debt or if it helps you pay off your debt faster. Otherwise, taking on a new loan to wipe out an old one is postponing the inevitable.
Personal loans also frequently carry fees of 1% to 6%, called origination fees. You may pay less by simply tackling your existing debts in a systematic way, rather than consolidating.
Lastly, the best rates for personal loans will go to those with impeccable credit. If you have limited credit history or a poor credit score, expect to pay rates at the higher end of the ranges shown.
Lenders that don’t charge an origination fee
As noted above, many online lenders charge an origination fee on a loan. The fee, usually from 1% to 6% of the loan amount, depends on your credit profile. It is baked into the annual percentage rate (APR) that you receive when you qualify for a loan.
If you’re already in the hole, every penny matters. These lenders don’t charge an origination fee on their loans, have competitive rates and offer other advantages:
Discover has a minimum credit score of 660 and offers loans starting from $2,500. The lender’s loans are aimed at those who want to consolidate debt. Discover is one of the few online lenders that allow borrowers to pay their creditors directly, increasing the odds of successfully paying down debt. But Discover borrowers have an average credit score of 750 and high incomes, so it isn’t ideal for borrowers with bad credit. The company’s APR ranges from 6.99% to 24.99%, and it offers some flexibility around payment dates.
LightStream accepts only those with excellent credit scores and a long credit history, but its rates are among the lowest offered by online lenders. LightStream tailors interest rates based on a borrower’s intent, so a debt consolidation loan will have a higher rate than say, a home improvement loan.
SoFi offers loans of up to $100,000 to borrowers with excellent credit and high incomes or earning potential. The lender has low fixed and variable interest rates. Borrowers typically have solid credit histories and enough cash flow to cover their loan payments.
If you are in a position to qualify for a LightStream or SoFi loan, you are also likely to qualify for a 0% interest credit card or a cheaper secured loan, so consider all your options to pay down debt.
• Available in 47 states
• APR: Offers both variable and fixed rates, ranging from 5% to 15%.
• Loan amount: $5,000 to $100,000
• Loan terms: 3, 5 and 7 years
• Minimum credit score: 660, but typically 700+
• Time to funding: A few business days
• Fees: No origination fee. Late fee is the lesser of 4% of payment or $5.
Lenders for financial discipline
Installment loans demand more discipline than credit cards. Payoff takes that discipline a step further: It accepts only borrowers with good credit who are paying off credit card debt. Payoff allows a maximum debt-to-income ratio of 50% and it gives borrowers free access to their FICO credit score. The lender charges an origination fee, but no late fee. Each borrower is assigned a point person who will learn the customer’s financial habits and guide him or her out of credit card debt.
Lenders that allow co-signers
FreedomPlus is a smart choice if you have people with good credit willing to help you pay down debt.
FreedomPlus gives borrowers two ways to reduce their interest rate. First, it rewards debt consolidation borrowers with a lower rate if they choose the option to pay off creditors directly. Borrowers can also add a co-signer with good credit for a lower rate. Forty percent of FreedomPlus borrowers have co-signers, according to the company.
Updated March 8, 2017.
Loans presented on this page have a minimum loan length of 1 year, maximum loan length of 7 years, and a maximum APR 36.00%.