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A new credit card here, a personal loan there, maybe a line of credit — it’s easy to find yourself carrying a variety of balances over the years. These are often unsecured debts with high interest rates and different repayment terms.
Debt consolidation loans are one option to consider if you need help simplifying your debt. While they aren’t for everyone, these loans can allow you to lower interest rates, make it easier to pay off balances, and in some cases, reduce your monthly payment.
Keep reading for how to find the best debt consolidation loan for your financial situation:
- What is a debt consolidation loan?
- How do debt consolidation loans work?
- Where can I find a debt consolidation loan?
- How can I get a debt consolidation loan?
- How much can I save with a debt consolidation loan?
- What factors should I consider in a debt consolidation loan?
- Debt consolidation loan alternatives
What is a debt consolidation loan?
A debt consolidation loan is an unsecured personal loan that allows you to consolidate various debts, including credit card balances and loans or lines of credit, into one simple balance. If you have four credit cards that you’re paying off, for example, you can use a debt consolidation loan to pay off your credit card balances and then start making payments on the loan.
Alternatively, some lenders may pay off your creditors directly, so they’ll ask you to provide them with loan balances and account numbers.
With Credible, you can easily compare rates from various lenders at once.
How do debt consolidation loans work?
To take out a debt consolidation loan, you’ll need to submit an application and meet the lender’s borrowing requirements. Once you’ve applied and qualified, you’ll be offered your terms, including a loan amount and a fixed interest rate. Your lender will provide a schedule for your loan, including a monthly payment amount based on your chosen loan term.
In some cases, this new payment may be less than the combined amount you were paying on your existing debts. While a lower payment may help with cash flow, note that this may cost you more in interest over the life of the loan, and it could take you longer to get out of debt. If your budget allows for it, choosing a shorter repayment term will come with a higher payment, but you’ll get out of debt sooner and pay less interest overall.
If you agree to the loan terms, you’ll then sign closing documents for the funds and they’ll be disbursed.
Where can I find a debt consolidation loan?
Debt consolidation loans are offered by a variety of different lenders, including banks, credit unions, and online lenders. Choosing the right one for you depends on your needs and your credit history.
You may want to consider a debt consolidation loan through your existing bank or credit union. Since you have a relationship established there, it might be easier for you to get approved and funded, and managing your loan may also be simpler. Just make sure that the interest rates, fees, and terms are in line with what you’re seeing elsewhere, so you don’t pay more for the sake of convenience.
Interested in consolidating your debt? Credible makes it easier and faster to shop around for the best debt consolidation loans.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
|Lender||Fixed rates||Loan amounts||Min. credit score||Check rates|
|7.99% - 29.99% APR||$7,500 to $50,000||Does not disclose|
|8.99% - 35.99% APR||$2,000 to $50,000||600|
|7.99% - 24.99% APR||$2,500 to $40,000||660|
|11.52% - 24.81% APR||$5,000 to $40,000||640|
|7.99% - 25.49% APR with autopay||$5,000 to $100,000||700|
|9.99% - 35.99% APR||$3,500 to $40,000||640|
|8.99% - 25.81% APR10||$5,000 to $100,000||Does not disclose|
|8.49% - 35.99% APR||$1,000 to $50,000||600|
|5.2% - 35.99% APR4||$1,000 to $50,0005||620|
How can I get a debt consolidation loan?
Getting a debt consolidation loan is a fairly straightforward process, if you meet the lender’s requirements. Follow these four steps:
- Comparison shop. First, you’ll want to comparison shop to find the best rates and loan terms. Credible is a great place to start, since it lets you see multiple lenders and get details about their loan products in one place.
- Prequalify. You can often prequalify with many lenders, especially if you go through a platform like Credible. Prequalifying allows you to compare rates and get an idea of your likelihood of approval, with just a soft credit check and no commitment.
- Apply. Once you’ve picked a lender and prequalified, it’s time to apply. You’ll need to provide personal information, such as your Social Security number, address, date of birth, email, and income. The lender will usually conduct a hard credit check at this time, and you’ll be given a final decision.
- Close. Now, it’s time to close on your new loan. Your lender will send over closing documents that outline your loan amount, interest rate, repayment terms, and any applicable fees. Once you sign your loan documents, the lender will disburse your funds (either to you or directly to your creditors). Funding times vary, but you may be able to receive your loan funds in as little as one business day — or the same day, in some cases.
How much can I save with a debt consolidation loan?
Debt consolidation loans can be a great way to save money on your debt repayment, usually by lowering your overall interest rates. How much you’ll save depends on your unique situation.
For example, say you have $10,000 in credit card debt at a current APR of 25%. If you only make the minimum payment of $309 each month, it’ll take you about 4.5 years to pay off the balance, and will cost you a total of $16,808 ($6,808 of which is just interest).
With a debt consolidation loan, you could lower that APR to 5.9% and lower your monthly payments to just $193. While it might take you a few extra months to pay off the debt, you’ll pay just $1,572 in interest: a savings of $5,236!
|Credit cards||Debt consolidation loans|
|Interest rate||25% APR||5.9% APR|
|Min. monthly payment||$309||$193|
|Repayment term||55 months||60 months|
|Total interest paid||$6,808||$1,572|
Use our personal loan calculator below to estimate your monthly payments. Simply enter the loan amount, interest rate, and loan term to see how much you’ll pay over the life of the loan.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
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What factors should I consider in a debt consolidation loan?
Each debt consolidation loan is different, so you’ll want to consider and compare each of the factors involved to ensure that you’re picking the right loan for you.
- Interest rate and APR: The interest rate is what you pay to borrow money. The annual percentage rate, or APR, is the interest plus any fees the lender charges. When comparing loans, looking at the APR will give you a more accurate picture of the total loan costs than the interest rate alone. The lower the rate, the less you’ll pay. When consolidating debt, choose a loan that reduces your effective interest rate.
- Fees: Some lenders may charge origination fees, administration fees, and other fees, which will add to your total loan expense. You may need to factor these costs into your total borrowed amount to make sure your final disbursed funds are enough to cover your debts.
- Loan term: Your loan term will determine how long you have to repay the debt and what your monthly payment amount will be. Balance your debt repayment goals with your monthly budget to find the right term for you.
Debt consolidation loan alternatives
If you want to pay off your existing debt faster, or for less interest, here are a couple of debt consolidation loan alternatives to consider.
0% intro APR balance transfer credit card
The first option is to utilize a 0% balance transfer card. With a balance transfer credit card, you can shift your debt from one account to another, taking advantage of an introductory zero-interest opportunity. Just be sure to pay off the balance before the introductory period ends, or your remaining debt will begin accruing interest at the card’s regular rate.
Home equity loan
Another option is to tap into your existing home equity through a home equity loan. This can be a good option if you have good credit, and even if you have fair credit. A home equity loan allows you to utilize the equity that’s already in your property. Just be aware of the potential pitfalls when using a home equity loan to pay off debt. This method turns your unsecured debt — such as credit card balances and medical bills — into a debt that’s secured by your home. If you were to default on the loan, you could lose your property.
Debt consolidation loans can be a key part of any debt management plan. If you’re juggling multiple debt balances, especially with higher interest rates, these unsecured personal loans may be worth considering.
Check out Credible to compare debt consolidation loan rates and find the one that’s best for you.