Best Debt Consolidation Loans of December 2023

If you have multiple high-interest debts, debt consolidation may be a good idea. With a debt consolidation loan, you can roll all your debts into a single, manageable account with one payment and, ideally, a lower interest rate. Here’s what you need to know about the best debt consolidation loans.

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Best debt consolidation loans

To find the best debt consolidation loan, know your FICO credit score, how much you need to borrow, and the monthly payment you can afford. Then, look for lenders with a minimum credit score below yours that offer the amount you need. Once you’ve identified a few lenders you like, prequalify to compare rates.

Methodology

Credible evaluated the best personal loan lenders for best debt consolidation loans based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and whether cosigners are accepted. Credible’s team of experts gathered information from each lender’s website, customer service department, directly from our partners, and via email support. Each data point was verified by a third party to make sure it was accurate and up to date.

How does a debt consolidation loan work?

A debt consolidation loan is a personal loan, generally unsecured, offered by a bank, credit union, or online lender. Once you take out the loan, you’ll receive a lump sum of money upfront and use it to pay off all your old debts. Then, you’ll repay the loan through fixed monthly payments over time. Common types of debt to consolidate include credit cards and medical debt.

For example, let’s say you have $30,000 in credit card debt split among three credit cards with high interest rates. If you take out a $30,000 debt consolidation loan with a lower interest rate and five-year term length, you can consolidate your debt with one monthly payment (instead of juggling multiple). Plus, you’ll be able to repay your debt faster and save money on interest in the process with a set end date in mind.

Check Out: Debt Consolidation vs. Personal Loan: What Is the Difference?

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Pros and cons of debt consolidation

Before you move forward with debt consolidation, consider these benefits and drawbacks.

Pros

• Interest savings: Debt consolidation could help you secure a lower interest rate than the rates you’re currently paying on your debts. This may save you hundreds or even thousands of dollars on interest.
• Single monthly payment: By consolidating your debt, you’ll only have one payment with one due date to keep track of. You’ll be able to simplify your debt repayment process and enjoy a clearer path to becoming debt-free.
• Chance to get out of debt faster: If you can lock in a lower interest rate, you may use the money you save on interest to repay your debt faster. A shorter repayment term can expedite the process even more.

Cons

• Potential fees: Some debt consolidation loans come with fees. These may include origination fees or application fees.
• No guarantee of a lower interest rate: Ideally, you’d be able to land a lower rate on a debt consolidation loan. But this may not be possible, especially if you have fair or bad credit.
• Debt might return: Debt consolidation can help you get out of debt. If you've had problems managing finances in the past, however, your debt could return if you don't adjust your spending patterns.

How to compare debt consolidation loans

As you shop around for a debt consolidation loan, it’s a good idea to compare the following:

• Interest rate: Your interest rate will determine the overall cost of your debt consolidation loan. The lower your interest rate, the less you’ll spend over time.
• Loan amounts: Most lenders offer loan amounts that range from $1,000 to $100,000. Factors like your credit and income will dictate how much you can borrow.
• Repayment terms: In general, repayment terms for debt consolidation loans may be anywhere from 1 to 7 years. A shorter term can help you save on interest.
• Fees: Some lenders charge fees on debt consolidation loans, like origination fees, late fees, and prepayment penalties.
• Cosigner option: If you have a low credit score, applying for a debt consolidation loan with a cosigner can increase your chances of approval with a lower interest rate. But keep in mind that not all lenders accept cosigners.
• Funding time: Funding times vary by lender. You can expect same-day funding, next-day funding, or funding within a few business days.

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Eligibility requirements for debt consolidation loans

While eligibility criteria for a debt consolidation loan can vary by lender, these are a few of the typical requirements:

• Good credit: Most lenders look for good to excellent credit, typically defined as a FICO score of 670 or higher. Fortunately, there are some lenders that are more lenient and approve borrowers with fair or bad credit, but these loans usually come with higher interest rates.
• Verifiable income: Some lenders have a minimum income requirement. But even if a lender doesn’t, you’ll likely have to provide proof of income so they know you can pay off your loan.
• Low debt-to-income ratio: Your debt-to-income ratio (DTI) shows the amount you owe in monthly debt payments compared to your income. A DTI of no higher than 35% is ideal for debt consolidation loans.

How to apply for a debt consolidation loan

If you’d like to take out a debt consolidation loan, follow these steps:

• Compare lenders: Not all debt consolidation loans are created equal. Shop around and compare factors like interest rates, terms, and fees from as many lenders as possible.
• Pick a loan option: Choose the loan with the lowest interest rate, as long as you know you can comfortably repay it back. A loan with a shorter term is also a good idea if you’d like to become debt free faster.
• Complete the application: Most lenders will allow you to apply for a debt consolidation loan online. Be prepared to share your financial details and submit documents like your pay stubs and government-issued ID.
• Get your funds: You’ll likely need to wait anywhere from that same business day to a few business days to get your funds. Direct deposit is usually the fastest method.

Additional strategies to get out of debt

If you decide that a debt consolidation loan doesn’t work for you, consider these alternative strategies.

• Balance transfer credit card: With this card, you’ll be able to transfer your debt and repay it without interest as long as you pay it off before the 0% promotional period comes to an end. This may be anywhere from 6 to 18 months.
• Increase your income: Boost your income with a part-time job or a side hustle. Then, use your extra earnings to repay debt.
• Create a budget: A budget is a spending plan based on your income and expenses. Work out a budget that allows you to contribute as much money as possible toward your debt payments.
• Debt avalanche and snowball methods: The debt avalanche method is when you focus on your high-interest debts first to save the most on interest. The debt snowball, on the other hand, prioritizes your smallest debts and allows you to build momentum so you stay motivated to keep going.
• Negotiate with your lender: Don’t be afraid to reach out to your lender and find out if they can help you get out of debt. They may be able to offer a lower interest rate or a different repayment term to make the process a bit easier.
• Credit counseling: You can work with a credit counseling agency to pursue a debt management plan. The agency may negotiate with your creditors to lower your interest rates or waive certain fees.

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Debt consolidation FAQ

Will debt consolidation affect my credit score?

Debt consolidation can help or hurt your credit. If you apply for a loan to consolidate your debt and the lender performs a credit check, you can expect a slight drop in your credit score. On the flip side, your credit score may improve if you consistently make on-time payments on your new loan.

Can I still use my credit cards after consolidating my debt?

You can still use your credit card after you complete the debt consolidation process. But you should be careful, or you might steer yourself into the cycle of debt once again.

What are some alternatives to debt consolidation?

If you decide that debt consolidation isn’t a good fit, you may want to consider DIY debt payoff methods, like the debt avalanche or debt snowball. Other options include negotiating with your lenders and credit counseling.

Learn More: Debt Consolidation vs. Bankruptcy: How to Choose