Unearth Your Fortune

By Maddy Scheckel

March 9, 2023

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Debt consolidation loans are like a cheat code for paying off debt.

If used responsibly, they can significantly reduce the amount of interest you pay in the long run. 

Personally, I’m a big believer in debt consolidation loans, as they helped me settle over $5,000 in credit card debt.

So if you’re like the 80% of Americans struggling with debt, don’t worry. 

In this article, I’ll explain how to consolidate your debt and cover some of the best debt consolidation loans available.

What is a Debt Consolidation Loan?

Debt consolidation loans allow you to roll multiple debts into one loan, ideally with a lower interest rate. 

Instead of making payments to different lenders for varying debts, you’ll only have to make one monthly payment.

How Do Debt Consolidation Loans Work?

When you take out a debt consolidation loan, you’ll use the money from the new loan to pay off your other debts. 

Let’s say you have $5,000 in credit card debt, $3,000 in medical bills, and $2,000 in payday loans. The interest on this debt averages around 20%.

You could take out a debt consolidation loan for $10,000 at 15% interest, settle all your debts, and only pay 15% annual interest instead of 20%. 

This helps you streamline payments to get out of debt faster and avoid paying more in interest. 

How to Get a Debt Consolidation Loan

Although it might seem intimidating, getting a debt consolidation loan is quite simple. 

Here’s my three-step guide:

  1. Create a budget
  2. Shop around for the best rates
  3. Apply for debt consolidation loans

The biggest mistake I made when consolidating debt was not creating a budget. I took out a debt consolidation loan and ended up in even more debt.

This is because I was reducing the interest on my debt, but the habits that caused this debt in the first place were still there. 

A good way to avoid this is to create a written budget. 

After you’ve established disciplined budgeting habits, start shopping around for the best loan.

I recommend starting with the bank you’re currently with (assuming you have a good relationship with them). From there, research online lenders and compare interest rates and fees.

When you find a lender with the most favorable rates, it’s time to apply. 

Once a lender confirms your approval, settle your old debts, and begin making your monthly payments on time.

Best Debt Consolidation Loans

1 – Best Egg

Best egg offers loans up to $50,000 and some users receive funds the same day!
Source: Best Egg

Best Egg was ranked the #1 personal loan provider by Best Company. 

But what sets Best Egg apart is that they accept collateral, making it easier to qualify for low-interest loans. They also offer credit card refinancing, which is a useful alternative if you can’t qualify for debt consolidation loans.

  • Best for secured consolidation loans: Best Egg is one of the only online debt consolidation lenders that accepts collateral.
  • Loan amounts: $2,000 to $50,000
  • APR range: 8.99% to 35.99%
  • Term lengths: 36 months to 60 months
  • Fees: A one-time origination fee and a $15 returned payment fee
  • Minimum credit score needed: 640
Pros Cons 
Offer both secured and unsecured loansNot available in Iowa, Vermont, West Virginia, the District of Columbia, or U.S. Territories
The Direct Pay feature means they pay off existing loans for youTo access the best rates, you need a credit score of 700 and an annual income of $100,000

2 – Happy Money

Happy Money debt consolidation loans put the customer first by offering an easy lending process.
Source: Happy Money

Happy Money is one of the most reputable debt consolidation lenders. They were featured on CNBC, The New York Times, and Harvard Business Review. 

Also, they have given out over 5.2 billion dollars in loans to more than 285,000 customers. Happy Money only offers personal loans to help people pay off their existing credit card debt. 

This is why they’re a fantastic option for people trying to get their finances back on track. 

  • Best for credit card debt: Happy Money has specialized plans to pay off credit card debt.
  • Loan amounts: $5,000 to $40,000
  • APR range: 7.99% to 29.99%
  • Term lengths: 24 months to 60 months
  • Fees: Only origination fees
  • Minimum credit score needed: 640
Pros Cons 
View your FICO score in your Happy Money accountNot available in Massachusetts or Nevada
Focused on helping people build good creditHappy Money doesn’t process same-day payments

3 – LightStream

LightStream offers attractive interest rates as low as 7.99%
Source: LightStream

LightStream allows you to borrow up to $100,000, which is the highest limit on this list!

There are zero fees or prepayment penalties, so you won’t have to worry about any unexpected bills either.

  • Best for large loans: You can borrow up to $100,000!
  • Loan amounts: $5,000 to $100,000
  • APR range: 7.99% to 24.49%
  • Term lengths: 24 to 144 months
  • Fees: None
  • Minimum credit score needed: LightStream doesn’t provide a specific credit score, but they claim you need ‘good’ credit to qualify
Pros Cons 
No prepayment penaltiesYou need to have a ‘good’ credit score
Setting up autopay can lower your interest rateThey don’t offer prequalification on their website

OneMain Financial lets consumers with bad credit borrow debt consolidation loans
Source: Google Play

OneMain Financial is a reputable lender that has been in business for over 100 years. 

This company provides a range of financial services, including debt consolidation loans. But watch out because the interest rates are on the higher end.

  • Best for customers with bad creditOneMain Financial has zero credit requirements.
  • Loan amounts: $1,500 to $20,000
  • APR range: 18.00% to 35.99%
  • Term lengths: 24 to 60 months
  • Fees: Late fees, origination fees, and overdraft fees
  • Minimum credit score needed: None
Pros Cons 
OneMain Financial has the option to pay off your existing creditors directlyInterest rates start at 18%
You can use the OneMain Financial app to manage your debt consolidation loanIt charges a host of fees

Marcus offers low-interest, no-fee personal loans, perfect for debt consolidation.
Source: Marcus

Marcus by Goldman Sachs offers personal loans for debt consolidation, home improvement projects, weddings, and more. Their debt consolidation loans are free of fees and have competitive interest rates. 

Plus, they have a mobile banking app that makes managing your account easy.

  • Best for no fees: If you’re looking to save money on fees, Marcus by Goldman is your best bet because they charge zero fees.
  • Loan amounts: $3,500 to $40,000
  • APR range: 6.99% to 24.99%
  • Term lengths: 36 months to 72 months
  • Fees: None
  • Minimum credit score needed: 660 
Pros Cons 
Get rewarded when you make 12 consecutive on-time paymentsOnly U.S. residents can qualify
Marcus pays the loan directly to your previous creditorsNo option to partner with a co-signer

6 – Discover

Discover provides low-interest rate debt consolidation loans and wires it into your bank account within one business day.
Source: Discover

Most people know of Discover from their credit cards. But Discover is also a popular debt consolidation lender. They have a 4.7 star rating from over 33,000 customer reviews!

Their simple, step-by-step online application process enables customers to apply within minutes.

  • Best for low-interest rates: Discover has debt consolidation loans with interest as low as 6.99%.
  • Loan amounts: $2,500 to $35,000
  • APR range: 6.99% to 24.99%
  • Term lengths: 36 months to 84 months
  • Fees: Only late fees
  • Minimum credit score needed: 660
Pros Cons 
Discover will pay your previous creditors off directlyThey don’t offer in-person service
There’s no upfront feesCannot be used to pay off Discover credit cards

7 – LendingClub 

You can borrow up to $40,000 in debt consolidation loans with LendingClub.
Source: LendingClub

Over four million customers have borrowed $70 billion from LendingClub. 

During this time, they’ve developed an application process tailored to giving users the best experience possible. If you don’t have good credit, you can take out a joint personal loan to help consolidate debt.

  • Best for joint personal loans: LendingClub lets you partner with someone and split the costs.
  • Loan amounts: $1,000 to $40,000
  • APR range: 8.30% to 36%
  • Term lengths: 24 months to 60 months
  • Fees: Origination fees of 3% to 6% of the total loan amount
  • Minimum credit score needed: 600
Pros Cons 
Option to make one-time payments using your debit card, cash, Google Pay, or Apple PayLendingClub only works in the U.S.
It comes with AutoPay optionThe mobile app can be glitchy

8 – Upgrade

Use Upgrade’s debt consolidation loans to get out of debt quicker and save more money.
Source: Upgrade

Upgrade offers fast funding as they’ll wire loans to your account within one business day. 

But depending on your bank, the money could take up to four days to become available. From here, you can settle your debts and streamline your monthly payments with Upgrade. 

  • Best for fast funding: Upgrade will pay your loan within 24 hours of approval!
  • Loan amounts: $1,000 to $50,000
  • APR range: 7.96% to 35.97%
  • Term lengths: 24 to 84 months
  • Fees: Origination fees between 1.85% to 8.99%
  • Minimum credit score needed: 560
Pros Cons 
Flexible payments dates (option to change when you need to) Higher interest rates than other lenders
No prepayment feesKnown for poor customer service

Commonly Asked Questions About Debt Consolidation Loans

Will Debt Consolidation Hurt My Credit?

Applying for a debt consolidation loan will lower your credit score, but it’s only temporary. This is because lenders run hard credit inquiries to check your credit report. But if you’re making payments on time, expect your credit score to increase after this.

Is a Debt Consolidation Loan a Good Idea?

Debt consolidation is a good idea for anyone with multiple high-interest loans who wants to streamline their debt into one payment.

Alternatives to Debt Consolidation Loans?

A home equity loan is an excellent alternative to debt consolidation. Since you’re using your home as collateral, the interest rate is generally lower. The disadvantage is that you might lose your home if you can’t make payments, but you can also use this as motivation to spend responsibly. 

How to Choose a Debt Consolidation Lender?

When choosing a debt consolidation lender, consider interest rates, fees, and the minimum credit score required. Don’t be afraid to shop around for the best option for your financial and personal needs.

Why Should I Consolidate Debt?

You should consider consolidating debt because it’ll help you pay your loan faster and save money. You’re streamlining all your debts into one payment that usually has a lower interest rate.

What is the Best Way to Consolidate Debt?

The best way to consolidate debt is to be patient and shop around for the best interest rates. Once you’ve found a lender with an attractive offer, make your payments on time and develop a budget so you aren’t accumulating more debt.

What is the Interest Rate on Debt Consolidation Loans?

The interest rates on debt consolidation loans usually range from 6% to 36%, depending on your credit history and debt-to-income ratio.

What Type of Loan is Best for Debt Consolidation?

Most financial institutions provide specialized debt consolidation loans with lower interest, so I recommend sticking to these types of loans. With personal loans and credit cards, the interest is typically higher.

What is the Downside of
Consolidating Debt?

There are several costs involved with consolidating debt, including annual fees, closing costs, and initiation fees. Also, many lenders charge late fees, so if you miss a payment, it’ll set you back further.

How Long Does It Take to Get Approved for a Debt Consolidation Loan?

Although this timeframe will depend on your lender, getting approved for a debt consolidation loan can take as little as one day up to several weeks. Fortunately, many online lenders are offering pre-approval and notify borrowers of their approval status the same day.

What are the Best Debt Consolidation Loans for Bad Credit?

OneMain Financial provides the best debt consolidation loans for bad credit because there are no minimum credit requirements. 

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