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Best debt consolidation programs for fall 2021

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own debt consolidation programs

Debt consolidation loans allow you to combine multiple balances into one simple payment, often with a lower interest rate. (iStock)

If you have a pile of credit cards or a stack of bills you’re struggling to keep track of, you might consider a debt consolidation loan.

Personal loans for debt consolidation programs allow you to pay off existing, higher-interest debts and replace them with a single loan with a lower, fixed monthly payment. However, like any credit product, debt consolidation loans have their advantages and disadvantages. This article covers both.

What’s a debt consolidation loan and how does it work?

A personal loan for debt consolidation is a new loan you take out to pay off your existing debt. Effectively, you’re refinancing your old debt with the new loan.

A debt consolidation loan typically has a lower interest rate than credit cards, so your new loan may have a lower monthly payment than your current debt. That means you may pay down your debt faster with the debt consolidation loan. You also have just one monthly payment to keep track of, rather than the varying due dates and amounts of your current debt.

However, your credit score will influence the interest rate you’re able to get on a debt consolidation loan. A better credit score typically means you can qualify for a better rate, and the inverse is also true. You’ll want to make sure the debt consolidation loan you take out will have a lower rate than you’re currently paying on your debt.

And, if you take out a debt consolidation loan to pay off high-interest credit cards, it’s important to avoid taking on new credit card debt once the initial balance is paid off.

Credible makes it easy to compare rates for debt consolidation personal loans from multiple lenders.

Best debt consolidation loans for fall 2021

As you shop for a personal loan for debt consolidation, you may consider a few of the following lenders. These lenders are Credible partners.

Avant

Avant may give you a personal loan even if your credit score is less than great, but be aware the lender charges some fees, including origination fees.

  • Minimum credit score: 550
  • Loan terms: $2,000 to $35,000
  • Fees: Origination (up to 4.75%), late and dishonored payment
  • Might be good for: People with poor to fair credit

Axos

Axos offers a simple and fast application that the lender says takes only three minutes, but you’ll need a relatively high credit score to qualify.

  • Minimum credit score: 740
  • Loan terms: $5,000 to $50,000
  • Fees: Origination (1% to 2%), late and insufficient funds
  • Might be good for: People with good credit

Best Egg

Best Egg says it can offer you a decision on whether you’re approved for a loan within just a few minutes.

  • Minimum credit score: 600
  • Loan terms: $2,000 to $50,000
  • Fees: Origination (0.99% to 5.99%)
  • Might be good for: People who want a quick decision on their loan

Discover

Discover offers personal loans with no origination fee, customer service available seven days a week and allows you to return the loan funds within 30 days without paying interest.

  • Minimum credit score: 660
  • Loan terms: $2,500 to $35,000
  • Fees: Late
  • Might be good for: People who can pay off their loan quickly

FreedomPlus

Using a FreedomPlus loan to pay off debt may make it easier to qualify for a better rate.

  • Minimum credit score: Not disclosed
  • Loan terms: $7,500 to $50,000
  • Fees: Origination (1.99% to 4.99%)
  • Might be good for: People using the loan to pay off debt

LendingClub

LendingClub will pay off your creditors directly when you’re approved for a debt consolidation loan, saving you the hassle.

  • Minimum credit score: 600
  • Loan terms: $1,000 to $40,000
  • Fees: Origination (3% to 6%), late
  • Might be good for: People who want their debts paid directly

LendingPoint

LendingPoint says its technology can assess your financial situation beyond just your credit score and offer loans specially tailored to you.

  • Minimum credit score: 580
  • Loan terms: $2,000 to $36,500
  • Fees: Origination (up to 6%)
  • Might be good for: People with lower credit scores

LightStream

LightStream offers personal loans of up to $100,000, and your loan can be delivered as soon as the same day.

  • Minimum credit score: 660
  • Loan terms: $5,000 to $100,000
  • Fees: None
  • Might be good for: People who need a larger loan

Marcus by Goldman Sachs

After making 12 on-time payments, Marcus allows customers to choose to skip a month with no extra interest accrued.

  • Minimum credit score: 660
  • Loan terms: $3,500 to $40,000
  • Fees: None
  • Might be good for: People who want the ability to skip a month’s payment

OneMain Financial

OneMain Financial doesn’t require a minimum credit score, making this a good option for people establishing a credit history.

  • Minimum credit score: None
  • Loan terms: $1,500 to $20,000
  • Fees: Origination (1% to 10% or $25 to $500), late and non-sufficient funds
  • Might be good for: People with poor credit

Payoff

Payoff loans are designed for consolidating credit card debt, and the company says its customers see an average credit score boost of 40 points within months.

  • Minimum credit score: 600
  • Loan terms: $5,000 to $40,000
  • Fees: Origination (up to 5%)
  • Might be good for: People with significant credit card debt

PenFed

With a minimum loan of $600, PenFed offers among the smallest loans on the market.

  • Minimum credit score: 670
  • Loan terms: $600 to $50,000
  • Fees: Late and insufficient funds
  • Might be good for: People who need a small loan

Prosper

Prosper gives you multiple loan offers from their investors, meaning you may have many different rate and term options in one place.

  • Minimum credit score: 640
  • Loan terms: $2,000 to $40,000
  • Fees: Origination (2.41% to 5%), check payment, late and insufficient funds
  • Might be good for: People who want to see different loan options

SoFi

SoFi offers “unemployment protection,” pausing your payments if you lose your job, and helping you find a new one.

  • Minimum credit score: Not disclosed
  • Loan terms: $5,000 to $100,000
  • Fees: None
  • Might be good for: People in career transition

Universal Credit

Universal Credit’s minimum credit score is one of the lowest on the market, offering a good option if you’re still building your credit.

  • Minimum credit score: 560
  • Loan terms: $1,000 to $50,000
  • Fees: Origination (4.25% to 8%), late
  • Might be good for: People building their credit

Upgrade

Upgrade makes it easy to compare the monthly payments you’ll need to make with varying loan terms.

  • Minimum credit score: 560
  • Loan terms: $1,000 to $50,000
  • Fees: Origination (2.9% to 8%), late
  • Might be good for: People deciding what size loan fits their budget

Upstart

Upstart considers more than just your credit score when making a loan decision, also evaluating your education and job history.

  • Minimum credit score: 580
  • Loan terms: $1,000 to $50,000
  • Fees: Origination (0% to 8%), late, insufficient funds and paper copy
  • Might be good for: People with a strong record at work or school

Other lenders to consider

The following three lenders are not Credible partners, so you won’t be able to easily compare your rates with them on the Credible platform. But they may also be worth considering if you’re looking for a debt consolidation loan.

Figure

Figure’s loan application is completely online, but you can reach support by phone seven days a week.

  • Minimum credit score: 680
  • Loan terms: $5,000 to $50,000
  • Fees: Origination (up to 3%)
  • Might be good for: People who want help with their application

Rocket Loans

Rocket Loans can make a pre-approval decision in seconds and funds loans as soon as the same day.

  • Minimum credit score: 650
  • Loan terms: $2,000 to $45,000
  • Fees: Origination (1% to 6%), late and insufficient funds
  • Might be good for: People who need their money quickly

Wells Fargo

Wells Fargo can fund its personal loans as soon as the same day, and the bank offers discounts for people who have a checking account with Wells Fargo.

  • Minimum credit score: Not disclosed
  • Loan terms: $3,000 to $100,000
  • Fees: Late and insufficient funds
  • Might be good for: People who bank with Wells Fargo

Methodology

Credible evaluated the best personal loan lenders based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms and fees. Credible’s team of experts gathered information from each lender’s website, customer service department and via email support. Each data point was verified to make sure it was up to date.

How can I get a debt consolidation loan?

When you’re ready to move forward with a personal loan for debt consolidation, here are the steps you’ll need to take.

  • Take stock of your debt. Make a list of all the debts you want to consolidate. List all the accounts you have open, including the company name and balance. Also note the due dates, because you don’t want to miss a payment while you’re working on your loan application. Total up the outstanding balances to determine how large a debt consolidation loan you’ll need.
  • Comparison shop. It’s worthwhile to get quotes from multiple lenders to find the best interest rates, fees and terms you can qualify for. Using a site like Credible, you can easily compare offers from a number of lenders with just a little bit of your personal information.
  • Prequalify. Most lenders have an online form you can fill out to receive a personalized quote and prequalify for a loan. Prequalifying typically requires a soft credit check, where the lender pulls your credit to give you an accurate assessment. These “soft pulls” don’t affect your credit score. You’ll generally need to use your Social Security number.
  • Apply. Once you’ve selected the lender you want to go with, the company will give you instructions on how to proceed from the prequalifying process. Generally, you’ll need to submit a bit more information for the formal application.
  • Close. Closing on a personal loan for debt consolidation typically doesn’t take long. You’ll need to sign documents acknowledging the terms of the loan and then the proceeds will be deposited into your bank account.

You can review rates from multiple lenders and apply for a personal loan using Credible.

How much can I save with a debt consolidation loan?

If you have high-interest debt, using a debt consolidation loan can save you a significant amount of money on your monthly payments. You can pay off your debt years faster and pay tens of thousands less in interest over the course of the loan.

Let’s look at an example for $10,000 in credit card debt at an average APR of 29%. Most credit card companies require a minimum payment of between 2% and 4% of your credit card balances, meaning your minimum payment is between $200 and $400 per month. Making minimum payments of $245, it would take about 15 years to pay off your total debt, and you’d pay more than $34,000 in interest. And that’s assuming your APR doesn’t change and your balance doesn’t increase with new charges.

With a $10,000 debt consolidation loan for five years and an interest rate of 14.35%, the average on the Credible marketplace for the week of Sept. 20, you’d have a monthly payment of $235 — quite similar to your minimum payment on your credit card. However, you’ll be done paying off the loan in just five years and pay just over $4,000 in interest. A seven-year personal loan would put your monthly payment at $189, and your total interest paid at a little more than $5,900. You can dig out of your debt more quickly and with much less out of your pocket.

What factors should I consider in a debt consolidation loan?

As you evaluate your debt consolidation loan options, be sure to compare and consider the following:

  • Interest rate and APR — The interest rate is the amount you pay to borrow money. This is how the lender makes money. You’ll likely see this expressed as APR, or annual percentage rate. This is a broader measure that takes into account the interest rate and any fees, and represents the true cost of borrowing money. The lower the interest rate and APR, the lower your monthly payments will be and the less in interest you’ll pay over the life of the loan. People with higher credit scores typically can qualify for the lowest rates.
  • Fees Not all lenders charge fees, but many do. One of the most common is an origination fee, usually charged as a percentage of the loan amount. This money is deducted from the amount you receive from the loan. If you have excellent credit, you’ll likely be able to find a personal loan for debt consolidation that doesn’t require an origination fee. Lenders may charge other fees, too, such as an application fee, prepayment penalty or late payment fees.
  • Loan terms The term of the loan is the length of time you have to repay. Repayment terms can be as short as one year, or as long as seven years or more. The longer your term, the lower your monthly payment will be — but the more you will ultimately pay in interest over the life of the loan. In general, you want the shortest term possible with a monthly payment that fits comfortably in your budget.

Debt consolidation loan alternatives

A personal loan for debt consolidation isn’t your only option. Here are a few others you may consider:

  • 0% balance transfer credit card These are credit cards that allow you to transfer balances from other cards onto them and not pay interest for a period of time — at least six months. This can give you some breathing room to pay down your debt without racking up new interest charges. However, after the 0% introductory period ends, you’ll be left with a much higher interest rate. You may also run into fees for transferring the balance. You may need good to excellent credit to qualify for a 0% card.
  • Home equity loan If you own your home, you may have built up equity. Equity is the difference between what the home is worth and the amount you owe on your mortgage. Banks and other lenders will allow you to borrow against this equity using a home equity loan or home equity line of credit (HELOC). These loans typically have lower interest rates than you’d find on a debt consolidation loan. However, you may pay higher closing costs and you also put your home at risk of foreclosure if you fail to make your payments.
  • 401(k) loan You may be able to borrow against the money you have saved in your company’s retirement plan. These loans also have lower interest rates, and won’t affect your credit score. However, you won’t be earning as much on your investment during the period of the loan and you may be forced to repay the money quickly if you end your employment. You may also face tax penalties if you fail to repay the money on time.

Comparison shopping for personal loans using a website like Credible can help ensure you find the best debt consolidation loan for your needs.


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