Debt Consolidation Loans 2024: Best Personal Loans

If you want to manage your debt in order to lower the interest and save on monthly payments, Debt Consolidation Loans are the right option for you. This is because debt consolidation loans typically allow borrowers to use a fixed-rate, unsecured personal loan to pay off or reduce multiple unsecured debts more easily.

Payoff Debt Consolidation Loans

Debt Consolidation Loans

Debt Consolidation is the process of combining multiple debts from credit cards, high-interest loans, and other bills into one monthly payment.

These debt consolidation loans may lower your interest rate, which can help you save money on interest, lower your monthly payments, and pay down debt faster.

These loans are offered by traditional brick-and-mortar banks, credit unions, and online lenders.

How Debt Consolidation Loans Work?

Online lenders, banks, and credit unions often present debt consolidation loans.

If you qualify, the lender puts the loan into your bank account, and you use that money to pay off your debts.

Some lenders dispatch loan proceeds directly to your creditors, saving you that step.

Once you pay off your other debts, you start making monthly payments toward the debt consolidation loan.

These payments are fixed for the life of the loan, typically two to seven years.

Pros and Cons of Debt Consolidation Loans


  • Your payment is less in interest.
  • You may get out of debt quickly.
  • Your finish line is an obvious reality
  • You have only one payment to make.


  • You might not qualify for a low enough rate.
  • Consolidation won’t resolve core spending issues.
  • You still have debt you have to manage.

How to Compare Debt Consolidation Loans

Debt Consolidation Loans

1. Look for Lower Annual Percentage Rates

The loan’s annual percentage rate, or APR, depicts its true annual cost and includes interest and any fees.

Rates differ based on your credit score, income, and debt-to-income ratio.

Use APRs to compare costs between various loans. Pick a low rate with monthly payments that fit your budget.

2. Avoid Origination Fees if You Can

Some lenders demand origination fees to cover the cost of processing your loan.

This one-time fee typically ranges from 1% to 10% of the loan amount and is removed from your loan proceeds or added to the loan balance.

If the fee is removed from your loan proceeds, you’ll need to request more than the sum of your debts to cover the fee and still have enough to pay your creditors.

Avoid loans that contain this fee to keep costs down, unless the APR (which will include the origination fee) is still lower than loans with no origination fee.

3. Confirm that Available Loan Amounts Match Your Debt

Debt consolidation loans come in a wide spectrum of loan amounts ($1,000 to $50,000) and repayment terms (two to seven years).

Look for a lender whose loan product satisfies your debt payoff needs.

For instance, some lenders offer only two repayment terms to choose from, which may not be enough flexibility depending on how much debt you have.

4. Look for Special Debt Consolidation Features

Some lenders deliver consumer-friendly features like direct payment to creditors, which means the lender pays off your old debts once your loan closes, saving you that task.

Other features to shop for comprise free credit score monitoring and hardship programs that temporarily reduce monthly payments if you face a financial setback.

Do Debt Consolidation Loans Hurt Your Credit?

Debt consolidation loans can either assist or hurt your credit score.

When you utilize the loan to pay off your credit cards, you lower your credit utilization, which measures how much of your credit limit is tied up.

Lowering your credit utilization can assist your credit.

On the other hand, applying for a loan demands a hard credit check, which can temporarily affect your credit score.

However, if you turn around and rack up new credit card debt, your credit score will suffer.

Making late payments on your new loan can also damage your credit score, while on-time payments can help.

Ultimately, if you utilize the debt consolidation loan to pay off your debts and then pay off the new loan on time, the overall effect on your credit should be positive.


How to Qualify for Debt Consolidation Loans

Debt Consolidation Loans

1. Build Your Credit

Loan approval is based mainly on your credit score and capacity to repay.

It may be possible to obtain a debt consolidation loan with bad credit, but borrowers with good to excellent credit have more loan options and may qualify for lower rates.

If you hold a fair or bad credit (a 689 credit score or lower), it can pay to build your credit before seeking a consolidation loan.

2. Apply for a Joint, Co-Signed, or Secured Loan

Adding a co-borrower or co-signer to your application can assist you qualify for a debt consolidation loan that you wouldn’t be able to on your own because of poor credit or low income.

In a joint loan, both borrowers have similar access to the funds, unlike a co-signed loan, in which only the main applicant does.

However, co-borrowers and co-signers are on the hook for omitted payments.

Some lenders may also suggest a secured loan, which means you can back it with collateral, like your car or an investment account, to boost your chances of approval or get a better loan offer.

However, you risk losing the asset if you fail to repay the loan.

3. Consider Different Types of Lenders

Compare proposals from banks, credit unions, and online lenders before choosing the best debt consolidation loan.

While banks manage to have some of the lowest rates, credit unions and some online lenders may look more favorably on bad-credit applicants.

How to Get a Debt Consolidation Loan with Bad Credit

You can still obtain a debt consolidation loan if you have bad credit (a 629 credit score or lower).

Look specifically for lenders that allow you to pre-qualify with a soft credit check.

That way you can review if you meet the lender’s requirements without taking a hit to your credit score.

This will also assist you to check if the rate you qualify for is lower than your existing debts.

Some online lenders specifically present debt consolidation loans for borrowers with bad credit.

If you’re not sure where to start, your local credit union is also a good first stop.

How to Get a Debt Consolidation Loan

1. Sum Up Debts and the Combined Interest Rate

The first stage in getting a debt consolidation loan is having a clear picture of your current debt.

You’ll desire to keep two numbers in mind moving forward; Your total debt, and your combined interest rate, if you want a lower interest rate on your consolidation loan.

2. Pre-qualify and Compare Loan Options

One of the best ways to compare loan proposals is to pre-qualify with multiple lenders, which lets you see your potential loan terms.

Though not all banks or credit unions propose pre-qualification, most online lenders do.

3. Apply for A Debt Consolidation Loan

Once you’ve decided on a lender, it’s time to register for the loan.

Most loan applications are online and ask you to provide personal information like your social security number, address, and other contact details.

You may as well be asked to provide proof of identity, employment, and income.

Once you’ve presented your application, the lender will make an approval decision.

If you’re approved, you’ll sign the loan agreement and receive the loans.

Funding time differs among lenders, but some lenders can fund the same day you’re approved.

4. Pay Off Creditors

Use the loan proceeds to clear your existing debts.

Some lenders dispatch the funds to your creditors, so you’ll need to provide account information about your existing debts and inspect the accounts to make sure they’re paid off.

If a lender doesn’t deliver direct payment, they’ll deposit the funds in an account of your choosing or mail a check, if you prefer.

However, it’ll be up to you to make sure the right amount goes to each debt.

5. Begin Making Payments on Your New Loan

Once your existing debts are settled, you’re left with your new loan.

Personal loan payments are monthly, though there’s usually no charge for paying off a loan early.

Create a plan now to manage your personal loan payments.

As you make progress on paying off your loan, try to maintain your credit card balances at or near zero until you’re debt-free.

However, avoid closing the accounts, which can lower your credit score.


Alternatives to Debt Consolidation

Debt Consolidation Loans

1. Credit Card Usage

Responsible credit card usage can help make sure that you don’t rack up too much debt and don’t get behind on payments.

Knowing how to pay down credit card debt can be extremely helpful and can help you save money over time.

2. Bankruptcy

If you are overwhelmed with debt and see no way of paying it off, bankruptcy may help you find relief. 

Filing for bankruptcy, however, will remain on your credit file for seven to 10 years and may affect your ability to obtain other loans in the future.

3. Debt Management Plans

Before you consider applying for a loan, one option is to use a debt management plan to consolidate your monthly debt payments.

With a plan like this, you must first find a credit counselor and work with them to formulate and stick to a repayment plan.

Once you and your counselor agree on a plan, they will often try to negotiate with your creditors to see if they can get you a lower monthly payment and sometimes a lower interest rate.

4. Creating a Budget

Creating a budget and monitoring your expenses is a vital step in understanding how much you can afford to pay toward existing debt each month.

Once a budget is in place, you will be able to set aside a set amount toward your debt payments and inch toward your goal of paying your loans off.

To summarize, debt consolidation loans can save you money in interest charges, make budgeting easier, and reduce bill-paying stress. If not used wisely, though, a debt consolidation loan can add to your troubles.

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