- \n
- Types of debt consolidation<\/b><\/a><\/li>\n
- How to consolidate bills with a consolidation loan<\/b><\/a><\/li>\n
- Debt consolidation loan vs. credit card<\/b><\/a><\/li>\n
- 17 lenders for debt consolidation<\/b><\/a><\/li>\n
- Benefits of using a debt consolidation loan<\/b><\/a><\/li>\n
- Is a debt consolidation loan the right option for me?<\/b><\/a><\/li>\n<\/ul>\n
<\/a><\/p>\n
Types of debt you can consolidate<\/h2>\n
A debt consolidation loan is a sum of money you borrow and then use to pay off other debts. By doing this, you combine all of your debts \u2014 and just as importantly, their monthly payments \u2014 into one. What\u2019s more, you\u2019re often able to score a lower interest rate, making your debt more affordable.<\/p>\n
There are several debt consolidation methods available for various types of debt. For example, credit card debt can be consolidated in several ways, including a debt consolidation loan or using a balance transfer card<\/a>. But other types of debt, such as federal student loans, use a special debt consolidation resource (in this case, the federal Direct Consolidation Loan).<\/p>\n
Types of debt consolidation<\/h3>\n
As mentioned, the type of debt you\u2019re consolidating will help you determine the best way to proceed. Let\u2019s talk about some of the most common debt consolidation options.<\/p>\n
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- Debt consolidation loan: <\/b>A debt consolidation loan is a personal loan used to consolidate existing debt. These loans are typically unsecured term loans in amounts ranging from less than $1,000 to as high as $100,000.<\/li>\n
- Debt management plan :<\/b> Credit counseling organizations offer these plans to help consumers better manage their debt. When you sign up, the organization will negotiate your debts directly with your creditors to try to get lower interest rates and monthly payments. After that, you\u2019ll make your monthly payments \u2014 usually spanning three to five years \u2014 directly to the credit counseling organization, and it will distribute that money to your creditors.<\/li>\n
- Debt settlement:<\/b> The goal of debt settlement is to settle your debt for less than you owe. You would typically work with a debt settlement company or attorney who negotiates with your creditors and attempts to lower your balance. Debt settlement often requires you to stop paying your debts for a while, which can negatively affect your credit.<\/li>\n
- Balance transfer credit card: <\/b>These credit cards offer an introductory annual percentage rate (APR)<\/a> \u2014 usually 0% for anywhere from six months to 24 months \u2014 when you transfer the balance from another credit card (or cards). This can be a great option for paying off high-interest credit card debt, since your full payments will go toward your principal balance and none toward interest during the introductory period. But beware of higher interest rates after the promotional period has ended.<\/li>\n
- Student loan refinancing:<\/b> If you have multiple student loans, you can use student loan refinancing<\/a> to consolidate them. Private student loan refinancing can help you manage private loans. For federal loans, it\u2019s best to consolidate with the Direct Consolidation Loan so you don\u2019t lose the government protections that federal loans offer, for example loan deferment, forbearance, and forgiveness.<\/li>\n<\/ul>\n
Other options for bill consolidation<\/h3>\n
The options listed above are some of the most popular methods to consolidate debt. These types of loans are unsecured, meaning there\u2019s no collateral on the loan. While failing to pay can affect your credit score, you don\u2019t risk losing important assets.<\/p>\n
Leveraging home equity<\/h4>\n
Meanwhile, some forms of debt consolidation are secured, often by your home or vehicle. For example, a home equity loan and home equity line of credit, or HELOC, are two types of loans that allow you to borrow against the equity you\u2019ve built in your home. Like a personal loan, you can <\/i>use this money for most purposes<\/i><\/a>, including debt consolidation.<\/i><\/p>\n
Using your home equity to pay off other debt has some benefits, including a lower interest rate since the loan is secured. However, it also puts your home at risk. If you can\u2019t make your payments, you risk foreclosure.<\/p>\n
Tapping into retirement savings<\/h4>\n
Another option some people use to consolidate debt is borrowing from their 401(k). While many companies do allow 401(k) loans, they come with major downsides.<\/p>\n
First, a 401(k) loan comes with interest just like any other type of loan. Moreover, when the money isn’t in your 401(k), it isn\u2019t invested and growing. Another major downside is that if you lose your job, you may have to repay the full loan amount immediately. And if you can\u2019t repay it on time, the loan counts as a distribution from your retirement plan, meaning it\u2019s subject to both income taxes and (depending on your age) an early withdrawal penalty of 10%.
\n<\/a><\/p>\nHow to consolidate bills<\/h2>\n
If you\u2019re considering a direct consolidation loan to help you pay off debt, here\u2019s how to get started:<\/p>\n
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- Check your credit score:<\/b> Before you apply for a loan, make sure your credit score is high enough to qualify \u2014 most lenders look for 670-739.<\/li>\n
- Research and compare lenders: <\/b>There are many personal loan options<\/a> to choose from, each with different loan amounts, terms, interest rates, and perks. During this time, you can prequalify with several lenders to get an idea of the terms you\u2019ll be offered.<\/li>\n
- Pick a loan option:<\/b> Once you\u2019ve shopped around and gotten interest rates from several personal loan lenders, you can pick the best loan for you. The best loan is often the one with the lowest interest rate, but it\u2019s also important to consider how much you can borrow, how much time you\u2019ll have to repay it, and what fees you might have to pay.<\/li>\n
- Complete your application:<\/b> Once you\u2019ve chosen a loan, you can submit your application. During the approval process, you\u2019ll likely have to provide proof of employment, income, and other personal details.<\/li>\n
- Get your loan funds:<\/b> Depending on your lender, you could have your loan funds as quickly as one day after your loan is approved. But that will depend on the lender \u2014 it could take longer. You can then use the money to pay off the debts you\u2019re consolidating, though some lenders will pay off your creditors directly.<\/li>\n<\/ul>\n
<\/a><\/p>\n
Debt consolidation loan vs. credit card<\/h2>\n
Debt consolidation loans are often used to pay off high-interest credit card debt. So you may be wondering \u2014 why not just continue making your credit card payments? Here are a few differences between debt consolidation loans and credit cards<\/a>:<\/p>\n
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- Interest rates:<\/b> Credit cards have notoriously high interest rates. According to the Federal Reserve, the average credit card rate as of April 2023 was more than 20%. Meanwhile, the average rate on a personal loan with a 24-month term was just over 11% for the same month.<\/li>\n
- Compounding:<\/b> Personal loans have simple interest, meaning it only ever applies to your principal balance. But credit card interest compounds daily<\/a>. Each day, your interest charges are added to your balance and also accrue interest. As a result, your balance can grow quickly and be more difficult to pay off.<\/li>\n<\/ul>\n
Example of debt consolidation<\/h3>\n
Let\u2019s say you have $5,000 in credit card debt. You have two options: you can either leave the balance on your credit card and pay it off over time or you can use a debt consolidation loan to pay it off faster.<\/p>\n
Let\u2019s say your credit card interest rate is 20%. Credit card minimum payments are often calculated as a percentage of your balance. For example, your minimum payment might be your interest from the past month plus 1% of your card balance.<\/p>\n
If you made the minimum payment on your $5,000 loan, it would take you 277 months \u2014 that\u2019s more than 23 years \u2014 to pay off the full balance, and you would pay more than $7,700 in loan interest.<\/p>\n
Now let\u2019s say you consolidated that credit card debt to a personal loan with an interest rate of 11%, the average according to the Federal Reserve. If you had a five-year loan, you would have a lower minimum payment than on the credit card, pay the loan off 18 years faster, and pay more than $6,000 less in interest.<\/p>\n
Even if you couldn\u2019t get a lower interest rate and still paid 20% on the personal loan \u2014 the same you had on the credit card \u2014 you would save more than $4,000 in interest and 18 years of payments.
\n<\/a><\/p>\n15 debt consolidation lenders<\/h2>\n
There are plenty of personal loan options<\/a>, so no matter what your needs are, you\u2019re sure to find a lender that works for you. Check out the following partner lenders of Credible that offer debt consolidation loans:<\/p>\n
1. Avant: Best for borrowers with poor credit<\/h3>\n
Avant makes it easy to turn your credit card debt into a fixed-rate loan with a single monthly payment. While loan amounts come in a more limited range \u2014 anywhere from $2,000 to $35,000 \u2014 they are available to borrowers with poor credit. You can qualify for a personal loan with a credit score as low as 550.<\/p>\n
\n<\/div>\n\n\n\n\n![\"\"](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2020\/12\/Primary_Brand-Mark_Blue_RGB_NO-PADDING-768x147.png\")
<\/div>\n \n\n <\/span>\n 3.9<\/span>\n <\/span>\n <\/div>\n\n \n Credible rating<\/a>\n <\/span>\n\n![\"Question](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/icon-help-dark.svg\")
\n \n Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.<\/a><\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/div>\n \n\n\n![\"A](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-light-full.svg\")
\n \n \n ![\"A](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-light-three-quarter.svg\")
\n ![\"An](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-light-empty.svg\")
\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \n\n\n Rates and terms<\/span>\n\n![\"A](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-dark-full.svg\")
\n \n \n \n ![\"A](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-dark-half.svg\")
\n <\/div>\n <\/div>\n <\/div>\n \n\n Fees and Discounts<\/span>\n\n\n \n \n \n ![\"An](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-dark-empty.svg\")
\n <\/div>\n <\/div>\n <\/div>\n \n\n Customer Experience<\/span>\n\n\n \n \n \n \n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div> <\/div>\n \n\n\n Avant Personal Loans<\/span>\n <\/div>\n\n\n![](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2017\/11\/fixed-rates-icon.svg\")
\n \n \n Fixed APR\n![\"Question](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/icon-help.svg\")
\n \n Range of fixed rates available from this lender <\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n \n 9.95% - 35.99% APR<\/sup>\n <\/span>\n<\/div>\n <\/div>\n <\/div>\n\n![](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2017\/11\/min-credit-score-icon.svg\")
\n \n \n Min. credit score\n\n \n Minimum credit score needed to qualify<\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n 550<\/div>\n <\/div>\n <\/div>\n\n![](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2017\/11\/loan-amount-icon.svg\")
\n \n \n Loan amount\n\n \n Total amount you can borrow from this lender<\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n $2,000 to $35,000**<\/div>\n <\/div>\n <\/div>\n\n![](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2017\/11\/time-to-fund-icon.svg\")
\n \n \n Time to fund\n\n \n How long it takes to receive your money<\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)<\/small><\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n\n\nReady to find a personal loan?<\/b>
\nCompare rates from top personal loan lenders to find the right one for you.<\/p>\n <\/div>\n Check Personalized Rates<\/a>\n\n Checking rates won't affect your credit score<\/span>\n <\/div>\n<\/div> <\/div>\n <\/div>\n\n\n \n View Details<\/span>\n <\/a>\n <\/div>\n\n\n <\/span>\n <\/div>\n\n\n- \n
- Fixed APR:<\/span> \n 9.95% - 35.99% APR<\/sup>\n <\/span>\n<\/li>\n
- Variable APR:<\/span> N\/A<\/li>\n
- Min. credit score:<\/span> 550<\/li>\n
- Loan amount:<\/span> $2,000 to $35,000**<\/li>\n
- Loan terms (years):<\/span> 2, 3, 4, 5*<\/li>\n
- Time to fund:<\/span> As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)<\/small><\/li>\n
- Fees:<\/span> Origination fee<\/li>\n <\/ul>\n <\/div>\n
\n- \n
- Discounts:<\/span> Autopay<\/li>\n
- Eligibility:<\/span> Available in all states except HI, VT, MA, ME, NY, WV<\/li>\n
- Customer service:<\/span> Phone, email<\/li>\n
- Soft credit check:<\/span> Yes<\/li>\n
- Loan servicer:<\/span> Avant<\/li>\n
- Loan Uses:<\/span> Debt consolidation, emergency expense, life event, home improvement, and other purposes<\/li>\n
- Min. Income:<\/span> $1,200 monthly<\/li>\n <\/ul>\n <\/div>\n <\/div>\n <\/div>\n<\/div> <\/div>\n
2. Axos Bank: Best for borrowers with excellent credit<\/h3>\n
Axos Bank offers personal loans with amounts ranging from $7,000 to $50,000 and terms ranging from three to six years. Axos Bank requires a higher credit score than many lenders \u2014 you\u2019ll need a score of at least 740 to qualify. But it also comes with some major perks, including a low starting interest rate and next-day funding on your loan.<\/p>\n
\n<\/div>\n\n\n\n\n![\"\"](\"https:\/\/www.credible.com\/blog\/wp-content\/uploads\/2020\/05\/axos-logo.png\")
<\/div>\n \n\n <\/span>\n 3.9<\/span>\n <\/span>\n <\/div>\n\n \n Credible rating<\/a>\n <\/span>\n\n\n \n Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology.<\/a><\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/div>\n \n\n\n\n \n \n \n \n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \n\n\n Rates and terms<\/span>\n\n\n \n \n \n \n <\/div>\n <\/div>\n <\/div>\n \n\n Fees and Discounts<\/span>\n\n\n \n \n ![\"A](\"https:\/\/www.credible.com\/blog\/wp-content\/themes\/credible\/assets\/images\/lender-rating\/star-dark-three-quarter.svg\")
\n \n <\/div>\n <\/div>\n <\/div>\n \n\n Customer Experience<\/span>\n\n\n \n \n \n \n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div> <\/div>\n \n\n\n Axos Personal Loans<\/span>\n <\/div>\n\n\n\n \n \n Fixed APR\n\n \n Range of fixed rates available from this lender <\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n \n 8.24% - 18.99% APR<\/sup>\n <\/span>\n<\/div>\n <\/div>\n <\/div>\n\n\n \n \n Min. credit score\n\n \n Minimum credit score needed to qualify<\/span>\n <\/span>\n <\/span>\n <\/div>\n <\/span>\n 730<\/div>\n <\/div>\n <\/div>\n\n\n \n \n Loan amount\n - Eligibility:<\/span> Available in all states except HI, VT, MA, ME, NY, WV<\/li>\n
- Variable APR:<\/span> N\/A<\/li>\n
- Compounding:<\/b> Personal loans have simple interest, meaning it only ever applies to your principal balance. But credit card interest compounds daily<\/a>. Each day, your interest charges are added to your balance and also accrue interest. As a result, your balance can grow quickly and be more difficult to pay off.<\/li>\n<\/ul>\n
- Research and compare lenders: <\/b>There are many personal loan options<\/a> to choose from, each with different loan amounts, terms, interest rates, and perks. During this time, you can prequalify with several lenders to get an idea of the terms you\u2019ll be offered.<\/li>\n
- Debt management plan :<\/b> Credit counseling organizations offer these plans to help consumers better manage their debt. When you sign up, the organization will negotiate your debts directly with your creditors to try to get lower interest rates and monthly payments. After that, you\u2019ll make your monthly payments \u2014 usually spanning three to five years \u2014 directly to the credit counseling organization, and it will distribute that money to your creditors.<\/li>\n
- How to consolidate bills with a consolidation loan<\/b><\/a><\/li>\n