What Are The 7 Best Debt Consolidation Loans?

Debt consolidation title with written calculations.

Don’t you just wish you could snap your fingers and make your debt disappear? Yeah, me too. Unfortunately, that is not a possibility. Instead, we have to find other ways to get out from under our debt. Thank goodness there happen to be several ways to get rid of debt, one of which is through debt consolidation loans.

With debt consolidation loans, you gain simplicity and usually save a lot in interest. Every time you make a payment, some of your money goes on the interest. But it’s important to find a good option for you. We reviewed 7 best consolidation loans below.

1. OneMain Financial

One Maine Financial Terms

OneMain Financial provides debt consolidation loans and other loan types to borrowers with not so great credit. They have no set credit score or income requirements since their decision is based on several things. The credit decision is based on your credit history, your income, and expenses, why you need the loan, and your overall ability to repay. This gives many people who normally would not qualify for credit a chance.

OneMain Financial debt consolidation loans come with up to five years to repay, and you are not penalized for repaying early. There is a pretty high-interest range, too, with the lowest rate being 18 percent. However, that interest is fixed into your monthly payments, so you do not have to worry about the interest compounding each month. You can usually get an answer on the same day as your application, but you have to go in person to finalize the paperwork.

OneMain Financial offers both secured and unsecured loans. However, unsecured loans will typically come with a higher APR. This is a great loan for those with low credit scores. However, if you have a higher credit score, you can typically get approved through another lender with lower interest.

Pros:

  • Fast approval
  • Fixed payments
  • No prepayment penalty
  • Repeat customers usually get better terms

Cons:

  • Larger loan amounts require collateral
  • Must go into the office to close the loan
  • High interest

2. Avant

Avant Terms

Avant is another company that offers debt consolidation loans for those with low credit. In fact, thanks to their low credit requirements, it is considered one of the best avenues for debt consolidation for poor credit. Their interest rates start as low as 9.95 percent, but if you have low credit, you should expect to move closer to the 35.99 percent interest rate. Additionally, they charge administration fees, late fees, and an unsuccessful payment fee, so you definitely do not want anything to go wrong.

Repayment terms go all the way up to 5 years, and there is no fee for paying your loan off early. One awesome thing about Avant is that they actually let you refinance your loans. If you find you need longer to repay your loan, need a lower monthly payment, or your credit improves enough to get better terms, you can refinance. It is always nice to know that something like this exists just in case you have some unexpected trouble.

Pros:

  • Can refinance if needed
  • No prepayment penalty
  • Low credit score requirements

Cons:

  • Cannot use a cosigner
  • Administrative fees of at least 4.75 percent
  • Late fee and unsuccessful payment fee

3. Upgrade

Upgrade terms

Upgrade is a favorite among many borrowers. You need at least a 580 credit score, which is pretty fair. There is no specified amount of income you need to make, which is helpful, of course. However, most borrowers make more than $30,000 per year. They also typically also have at least $1,000 leftover after paying bills each month. So, technically, there is a minimum amount of income required – it just depends on your monthly bills.

The interest rates are not too terrible, starting at 5.94 percent, and you can get up to seven years to repay your loan. You will also be charged origination fees of up to 8 percent of the loan. The lowest interest rates and best terms are usually available to those that set up autopay.

One of my favorite parts about Upgrade is that they have a hardship program for clients who are struggling, meaning that if you happen to lose your job, they will most likely work with you instead of letting your credit be ruined. Upgrade is not available in some states, including Maryland, Wisconsin, Iowa, West Virginia, Colorado, and Vermont.

Pros:

  • Help when struggling financially
  • Up to 7 years for repayment

Cons:

  • Origination fees of 1.5 to 6 percent
  • Need free cash flow
  • Not available everywhere
  • Minimum loan amounts vary according to location

4. SoFi

SoFi terms

SoFi offers debt consolidation loans and other loan types, but you have to meet some pretty stringent requirements to get approved. You- and your cosigner if you have one- need a credit score of at least 680, which is very difficult for many people. For some, a score of 700 is required, depending on the loan type and your financial state. While no minimum income is specified, most of the borrowers they approve make more than $100,000 each year.

SoFi offers both fixed and variable interest rates that start as low as 5.74 percent and go all the way up to 21.78 percent. The better your credit, the lower your rate. Repayment terms can go all the way up to seven years, and SoFi offers rewards- so to speak- to some clients. Those who sign up for the AutoPay option get a 0.25 percent discount on their interest.

Additionally, for every 12 consecutive payments you make on time, you can defer one payment. It is important to note, though, that you will continue to accrue interest on those deferred payments.

Pros:

  • No fees
  • Fixed and variable rate available
  • Discount for AutoPay

Cons:

  • Stringent requirements
  • Interest can get high

5. Marcus by Goldman Sachs

Marcus terms

Marcus by Goldman Sachs is a pretty well-known financial institution that offers bank accounts, debt consolidation loans, and more. This institution caters to those who have a good credit score but not necessarily a long credit history. You can borrow up to $40,000, so it is a good option for those with large debts to consolidate. Unfortunately, if you are approved, it can take several days for you to actually receive the funds.

If you make timely payments for a set time period, you are offered the chance to defer a payment. There are no fees involved and they even let you change your monthly due date up to three times if needed. They do not allow cosigners and interest can go up to nearly 20 percent. Documents required to apply will depend on several things, including the specific loan you are applying for.

Pros:

  • No late fees or origination fees
  • Rewards for timely payments
  • Can help with large debt
  • Can change your due date

Cons:

  • Needs pretty good credit
  • No cosign option
  • Can take time to receive loan funds
  • Interest can get high

6. Payoff

If you have a pretty good credit score and at least three years of credit history, Payoff is a great option for debt consolidation loans. You can borrow up to $40,000, and with the right credit score, you can do it with as little as 5.99 percent interest. Additionally, you can take up to five years to repay it without worrying about fees in the process. They even give you a 10 day grace period if you happen to be late on a payment.

Of course, lower credit scores will typically get higher interest rates. Payoff’s go all the way up to nearly 25 percent. You might face an origination fee of up to 5 percent, though some pay nothing. Payoff is not available in every state, including Massachusetts and Nevada.

Pros:

  • Offers education
  • No prepayment or late fees
  • Prequalification

Cons:

  • Origination fees up to 5 percent
  • Not available in all states

7. LightStream

LightStream is a division of the well known SunTrust Bank. They offer interest rates as low as 5.49 percent on loans up to $100,000. Signing up for AutoPay gets you a discount on your interest, and you can have up to seven years to repay the loan. LightStream can get you the funds you need as quickly as the same day that you apply for the loan.

LightStream does require a credit score of at least 660, but you can have a cosigner to help you get approved. There are no specified income requirements, though. While some other loans allow you to use the money for what you need, LightStream says that you can only spend the money on the listed purposes. This is not really a big issue as you are supposed to be getting the loan for a specific purpose. However, it is important to understand that you are not allowed to deviate when it comes to LightStream debt consolidation loans.

Pros:

  • Up to 7 years for repayment
  • No fees
  • Can use a cosigner
  • No specific minimum income

Cons:

  • No prequalification process online
  • Can only use the loan for approved purposes
  • Pretty high credit score requirements

How do Debt Consolidation Loans Work?

The Oxford Dictionary definition of the word “consolidate” is to “combine (a number of things) into a single more effective or coherent whole”. Using that definition, debt consolidation means combining all of your qualifying debts into one single loan. It tends to create a simpler and more effective plan for paying off debt.

Another good thing about debt consolidation is that your monthly payments are typically much lower than the sum of the separate payments. If you borrow $10,000, you will get a number of years to repay. Instead of making 10 $100 payments each month, you will likely end up paying less than half of that. Some people end up paying closer to a tenth of their current payments with the right lender and credit score.

For the sake of simplicity, let me explain it a little differently. Let’s say that you have 10 debts that come out to $10,000. Currently, you are paying on each debt every month with interest. Each of your debts has a different interest rate ranging from 8 percent to 20 percent. Through this go with the flow method, you usually end up paying a lot in interest since you are paying separate interest for each debt. Additionally, you have to make 10 separate payments each month.

Will Debt Consolidation Loans Hurt My Credit?

It is common to wonder whether or not debt consolidation loans will hurt your credit. There is no straight answer to this question as they can both help and hurt your credit, but they usually do a lot more good over the long haul. When you first get a debt consolidation loan, your score will likely drop because you are increasing the debt you owe.

However, once you have paid off your old debts with the debt consolidation loan, your score will increase. As you make timely payments on your loan, your score will increase even more. The short answer is that it will hurt your credit in the very beginning, but it will quickly begin to help it.

Debt Consolidation Loans VS Debt Settlement

Debt consolidation loans are a successful way to get out of debt, but they are not the only way. You might also consider debt settlement, through which you settle your debts for a lower balance than what you owe. Both of these options have benefits.

Truth be told, though, you can actually use the two methods together. Work with your debtors to settle for a lower amount, and then use a debt consolidation loan to pay them off. If you can manage to merge these two methods, you can get your credit in order quickly at a lower amount than you thought.

Conclusion

Debt consolidation loans are a great option for people who are in a lot of debt and have trouble making payments. If you choose to get debt consolidation loans, make sure you are committed to using them for the right reasons and making your loan payments. If you end up spending the loan funds on something else, you are only hurting yourself as you will still be in the same debt you were plus the new debt.

Not making loan payments will just cancel out all the work you did to pay off old debt. Before you apply for any loans, make sure you have a plan that you can commit to and handle things responsibly. If you feel you cannot, either have someone manage it all for you or find another way to pay off your debt.

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Is Debt Consolidation Better than a Balance Transfer Card?

Couple managing the debt

Not all debt is evil. Debt is a tool that allows us to make major purchases like homes or vehicles on affordable terms. Responsible use of debt allows us to weather rough times while still putting food on the table and meeting basic needs. But sometimes, you need a bit of help organizing and paying it off. Let’s look into debt consolidations versus balance transfer cards.

Debt Consolidation Loans

The idea behind debt consolidation is simple. You owe different amounts of money to many different places under many different terms. The constant payments coming due are overwhelming – sometimes more than you even make in a month. Half the time you’re late because you can’t afford to pay for everything, and the other time you’re late because you simply can’t keep track of it all.

A debt consolidation loan is the most common solution to help you out of the swamp. It’s basically a personal loan with a specific purpose – debt consolidation – and traditional loan terms. A debt consolidation loan is generally unsecured and carries a fixed interest rate. “Unsecured” means you’re not offering up collateral as security for the loan. If you’re dealing with serious debt, it’s unlikely you have substantial collateral other than possibly your home, and we don’t want that on the line if god forbid something were to go seriously wrong and you couldn’t make your payments. “Fixed interest” means that whatever interest rate you agree to at the time of the loan remains the same over the life of the loan, making your monthly payments consistent and thus easy to budget for.

Advantages of Debt Consolidation Loans

There are numerous advantages to the right debt consolidation loan:

  • It replaces multiple monthly payments to a single monthly payment. This means stretching your total debt out over a longer time period, so that each monthly installment is less than you were trying to pay in total each month
  • Paying off multiple creditors means no more late charges or penalties from multiple places
  • The right debt consolidation loan may carry a lower interest rate than the average you’re currently paying to various creditors, especially if you factor in those late charges and other fees we just mentioned
  • A lower overall monthly payment means more money freed up to take care of your priorities and those you love. While paying down your debt is a priority, it’s rarely your ONLY priority

Disadvantages of Debt Consolidation Loans

Let’s be equally honest about the potential disadvantages of a debt consolidation loan:

You still owe the money. This isn’t actually a disadvantage so much as a reality check. It’s easy to overlook the fact that taking more effective control of your debt isn’t the same as your debt going away – it’s just not in charge anymore.

If you’ve been struggling with debt, you may not have a great credit history or a high credit score. That doesn’t mean you don’t have options. There are reputable online lenders who specialize in situations just like yours and who offer debt consolidation for poor credit.

Realistically, however, your interest rates may not be as favorable and there could be upfront fees for getting started. Pay attention to the details and don’t take a bad deal out of desperation. Still, the chance to take control of your debt and begin rebuilding your credit may still be worth it. Bad credit doesn’t have to be a permanent condition.

Balance Transfer Credit Cards

You’ve no doubt seen the ads and maybe received an offer or seven in the mail recently. “No interest on balance transfers!” “Zero percent APR for 24 months!” “You’re Pre-Approved to Apply (**approval not guaranteed**)”

What about it? Are these low-interest or no-interest credit cards a good option for debt consolidation?

Maybe. But only in some very specific circumstances.If most of your current debt is credit card debt, and your current credit cards carry relatively high interest, a balance transfer might be a good move. You should first make sure you know what rates your cards are actually charging, which isn’t always as easy as it sounds. Somewhere on the same website you use to check your balance or make payments, there should be information about the interest you pay, usually expressed as a particular amount or percentage on top of this or that current market rate. That’s how APR works – you start with a relatively low rate, then it varies with market rates periodically. You can end up paying way more than when you started, or sometimes a little less.

If you can’t find it, call the card company. They’re legally obligated to explain this to you, and they don’t exactly try to hide it, despite it being a bit tricky to decipher on the website or those periodic “policy updates” they mail out. Until you know this rate or the formula used to determined your rate, you can’t compare it to the new card you’re considering.

Be Careful of Credit Card Rates

Be Careful of Credit Card Rates

Now you need to pay particular attention to the MULTIPLE rates being offered by the new card. Presumably, it’s promising you a year or more at some ridiculously low rate or zero interest or whatever. Does that apply to transfers as well as new purchases you might choose to make with the card, or only to one or the other? More importantly, what happens AFTER the introductory period? What will the interest rate be then? You don’t want to end up worse off than you were before.

Advantages to Balance Transfer Cards

If you’ve read all the small print and run the numbers, the biggest advantage is that a balance transfer card can conceivably save you serious money. Like with cell phone plans or cable TV packages, it seems it’s always easier to get a great deal from the company that wants to steal you than from the company who claims they’d like to keep you.

If you care about points or miles or rewards or cash back programs, a balance transfer card gives you the opportunity to move from a card that doesn’t offer the features you want to a card which does.

Most of all, balance transfers between credit cards are pretty straightforward compared to traditional loans. You fill out a little basic information, and if you’re approved, it’s almost like charging the debt from your old card onto your new card- quick and painless, more or less.

Disadvantages to Balance Transfer Cards

The biggest is that eventually, those promotional rates end. I realize we’ve already covered this, but it seemed worth repeating.

The other danger is similar to that of a debt consolidation loan. Once you transfer your balance to the new card, you suddenly have 2 or 3 credit cards with the same high limits and zero balance on them, just begging you to use them again.

If this is going to be a temptation, then close them. Eliminate the temptations. That’s not the ideal choice, but it’s better to cut them up than to fill them up.

A better option is to lock them up. Put them in the safe or somewhere else secure in your household. The available credit will help your credit score and you can always access them in emergencies. It’s best to get them out of your wallet or purse, however – no sense leaving Oreos around if you’re serious about your diet, right?

How to Compare Balance Transfer Cards

In Conclusion

No matter what your debt situation, you have options. It may not feel like it, but there’s almost always a way forward. And look at it this way… the more hopeless it feels, the less likely it is that things could honestly get much worse, right?

Stay safe, stay patient, and kind with one another, and keep following expert medical advice. And if you decide to tackle some debt management while you’re at it, we can connect you to reputable online sources who would be happy to help while maintaining COMPLETE social distancing. Just let us know when you’re ready!

You can do this.

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Does a Debt Consolidation Loan Hurt Your Credit Score?

If you are considering debt consolidation using a loan then you need to consider the question of does a debt consolidation loan hurt your credit score? Debt consolidation can be a good way to help you manage your debt and can make it easier to pay down the debt process. Depending on how you go through the process of debt consolidation, a loan can have an impact on your credit score. It can help your credit score in some ways and in other ways it can hurt your credit score.

How Does a Debt Consolidation Loan Hurt Your Credit Score?

Determining how can a debt consolidation loan hurt your credit score will depend on various options you choose. When you choose a loan or a credit card then you are applying for new credit, which will mean a hard inquiry on your credit report. Anytime this happens, the score can suffer. Before you start a debt consolidation plan, check your score. If you close down your credit cards in the process of paying down a loan then it can also hurt your score.

What makes up a credit score.

How to Prevent a Debt Consolidation Loan from Hurting Credit

If you are considering debt consolidation then your credit isn’t the best shape. If your credit score is already in bad shape then the answer to does a debt consolidation loan hurt your credit score won’t really matter as much. When you don’t want a debt consolidation loan to hurt your credit then it’s time to become aware of all your choices.

The higher the amount of debt, the greater the impact on the credit score. Even if you see a slip in your credit score, chances are your credit score is low enough that it won’t make much of an impact. If you are considering debt relief then be sure to arm yourself with information.

What Is Debt Consolidation?

In order to answer the question of does a debt consolidation loan hurt your credit score, it helps to know what bill consolidation financing is. Debt consolidation can help you get control of your money. During the process, you merge different bills into one debt you pay off with one monthly payment. You can do this using a debt management company or by getting a loan to get out of debt. Debt consolidation can work for credit cards with high interest.

Pros of Debt Consolidation

One of the main advantages of going through the process of debt consolidation is being able to handle your bills. First, try to negotiate your bills down as much as possible. Yes, that’s right it just takes calling and asking sometimes.

It helps to know the advantages of debt consolidation so you know if the risk of using debt consolidation is worth it to you. You get to merge all your debts into one larger debt.

If you are feeling overwhelmed about your debt then debt consolidating can make it easier to manage. One payment can be much easier to manage than a bunch of little ones. It can also improve your credit as you start to go through the process. As long as you are making consistent monthly payments, you decrease your debt and this will decrease your debt-to-income ratio as well.

Cons of Debt Consolidation

The biggest con of debt consolidation is the interest rate. You can have a high-interest rate on any loan you get, especially if you have bad credit. However, once you have locked in an interest rate, it won’t change as long as it’s a fixed rate. Consolidating debt won’t shorten the repayment in any way.

Unless you close your credit cards, they will still be available to use and you can increase your debt while paying the consolidation loan. This can be dangerous so you have to change habits in order for it to not be a problem.

How Does a Debt Consolidation Loan Help Your Credit Score?

While it initially seems the result is that a debt consolidation loan hurts your credit score, adding new credit or a loan will cause your utilization ratio to go up and this could help you score. For this to work, you will need to leave your credit cards alone after you pay them off.

Remember that a big part of your credit score is your payment history. If you want to prevent a debt consolidation loan from hurting your credit then be sure to make your payments on time every month, including your new consolidation loan.

Process of Debt Consolidation

In order to be successful and not have a debt consolidation loan hurt your credit score, it helps to know the process.

Know Your Goal

When you start to consider consolidation, there are some things you need to know because you do not want to have a debt consolidation loan hurt your credit score. The most obvious goal is to get out of debt but you may also have the goal to prevent debt consolidation from hurting your credit report. You should have long and short-range goals.

A long-term goal can be able to save for retirement. A short-term goal can be to begin saving money. When you consolidate your debt, it gives you the freedom to start to think about these goals. You also want to make sure that consolidating your debt doesn’t stand in the way of your goals.

Gather Your Debts

You need to gather information about your debts so you can know the gravity of the situation. You can’t start to understand the debt problem until you know how deep you are in. Check with your credit card companies and other loan companies to know the pay off amount. It could be different than you think.

Don’t stop paying debts just because you are considering consolidation. You still need to continue to pay off your debts. If you aren’t paying, this can hurt your credit score and give you additional fees. You also need to gather up your debts so that you know how much the loan should be, should you choose to go with that option.

Look at Your Assets

This is a step that many people overlook. Assets can be your home and vehicles you have. You can also consider other valuables you have. This can include investments, savings, and retirement plans. Assets can make a difference. Some companies that help with debt management will want you to use assets to pay off your debts. This may not be the best idea. Remember your goals about how paying off debt can be a short-term goal and saving for retirement is a long-term goal. Protecting assets can be a good way to also protect your financial future.

Understand Your Credit Score: In order to start the process, you should have an idea of your credit score. Your credit score can impact the interest rate you get on a debt consolidation loan. A lower credit score can give you a higher interest rate, which can result in having a debt consolidation loan hurt your credit score.

Look at Your Budget

Once you understand your debt, you also need to understand your budget. It helps to know how much you need to pay off your debt. If you aren’t able to pay off all your debt before the process then you may not be able to pay off the amount of the debt consolidation loan.

Know Your Options

There may be a few debt consolidation options available to you. Some of the options may not make sense for you but it’s important to know these options are available. A debt consolidation loan can be used to pay off all your debt and then you are responsible for paying that one payment. If you own a home, you can also consider a home equity loan.

This is a secured loan since you are using your home as collateral. These loans may have a lower interest rate but you do risk your home if you aren’t paying. A balance transfer may also be another option available to you. This also requires you to have a new credit card. You can transfer the balance and pay it off with a lower interest rate. You can also use a debt settlement company with an expert in debt consolidation to help you. The expert will come up with a plan for you that is tailored for your specific situation.

Can You Get a Debt Consolidation Loan with Bad Credit?

While the answer to does a debt consolidation loan hurt your credit score may be no, it can be harder to get a loan with bad credit. While it may be harder to get a loan, debt consolidation for poor credit can still be an option. Many modern lenders can give you a debt consolidation loan online and you can get approved in a very short period of time.

You can start to compare different consolidation lenders online so you can find the right one for you. There are some alternatives that you should be aware of. Payday lenders may not be looking out for your best interest. Some can give you decent terms but others will have interest rates that are extremely high.

Should You Consolidate?

The key to debt consolidation is to avoid taking on new debt. If you are borrowing money and paying off your credit cards but still charging them up, then you can be in worse shape than before. Think about your individual situation so you know how the process can affect your payments and your specific debt. Taking steps to consolidate debt can be the right choice if you are drowning in debt and you don’t have any end in sight.

If you feel that you can’t get your bills paid each month because you can only afford the minimum payment then you may also want to consider consolidating. If you don’t want to deal with multiple payments each month and want an easier way to settle your bills then you may also want to consider consolidating. You will have to decide which steps to address debt are the right choices for you. There are many different ways to access debt consolidation.

Final Thoughts

When you are trying to answer the question of does a debt consolidation loan hurt your credit score, you need to consider your unique situation. Debt consolidation can help your credit score but it may also hurt your credit score if you aren’t careful with the process. There are different ways to consolidate your debt, including a debt consolidation loan. It helps to know what kind of debt you have in order to understand if it is good or bad. By going through the process correctly, you can prevent a debt consolidation loan from hurting your credit score.

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