Debt Consolidation Loans: Compare Top Lenders – NerdWallet

NerdWallet’s guide to choosing the best debt consolidation loan

A debt consolidation loan is a personal loan you use to pay off multiple debts, such as balances on high-interest credit cards, medical bills or other unsecured debt.

This strategy can lower the total interest you owe on the debt and help you pay it off faster. It can also make debt easier to manage, since you only need to keep track of one payment.

Our guide to debt consolidation loans can help you understand how they work, when they’re a good idea and how to get one.

Why trust NerdWallet? NerdWallet has rated and reviewed personal loans from more than 35 financial institutions. We collect over 45 data points from each lender, interview company representatives and compare the lenders with each other. We do not receive compensation for our ratings. Read more about our personal loan star ratings methodology and our editorial guidelines.

How do debt consolidation loans work?

Online lenders, banks and credit unions offer debt consolidation loans. If you qualify, the lender deposits the loan into your bank tài khoản, and you use that money to pay off your debts. Some lenders send loan proceeds directly to your creditors, saving you that step.

Once you pay off your other debts, you make monthly payments toward the debt consolidation loan. Payments are fixed for the life of the loan, typically two to seven years.

Are debt consolidation loans a good idea?

If you can qualify for a low enough interest rate, and you can afford the monthly payments, debt consolidation loans can be a smart strategy for getting out of debt.

Here are the advantages of debt consolidation loans.

  • You pay less in interest. A debt consolidation loan should have a lower interest rate than the combined rate on your existing debts. This means you’ll owe less interest on the amount you’re borrowing.

  • You can get out of debt faster. Depending on the amount you owe and the repayment term you choose, you may get out of debt faster with a consolidation loan.

  • You can budget for fixed payments. Unlike other debts such as credit cards, debt consolidation loans have fixed rates and monthly payments that won’t change over the course of the loan, making budgeting easier.

  • You’ll have a clear finish line. By consolidating multiple debts under one loan, you’ll have an exact date when you’ll be debt-free, which can be motivating and help you stick to the payments.

Debt consolidation is one of several strategies for paying off debt. It won’t work if you have too much debt — think 50% or more of your gross income — or underlying spending issues.

Rates on debt consolidation loans

Debt consolidation loans work best if the loan has a lower interest rate than the combined interest on your existing debts. Rates vary by lender and depend heavily on your credit history and ability to repay.

Nerdy tip:

If you don’t know your credit score, you can

check it for free on NerdWallet

. Though borrowers with good and excellent credit (690 FICO or higher) are more likely to qualify for the lowest rates, you can still

get a debt consolidation loan with bad credit


Here is what interest rates on personal loans look like, on average.

How’s your credit?

Score range

Estimated APR













Source: Average rates are based on aggregate, anonymized offer data from users who pre-qualified in NerdWallet’s lender marketplace from Jan. 1, 2022, to July 31, 2022. Rates are estimates only and not specific to any lender. The lowest credit scores — usually below 500 FICO — are unlikely to qualify. Information in this table applies only to lenders with APRs below 36%.

Comparing debt consolidation loans

Like any major financial decision, it’s important to compare your options to make the best choice possible. Take into tài khoản these factors.

APR: The annual percentage rate, or APR, summarizes the total cost of the loan and includes interest and any fees. Comparing APR between loans is one of the best ways to gauge costs. The lower the APR, the less expensive the loan.

Repayment terms: Some lenders offer multiple repayment terms to choose from, while others only offer two choices (for example, a three- or five-year term). Having more repayment term options means you can better customize the loan. For example, a longer term means a lower monthly payment, while a shorter term carries less interest.

Special perks: Some lenders focus specifically on debt consolidation and offer special features, like sending the loan funds directly to your creditors, offering a rate discount for consolidating or monitoring your credit score while you pay off debt.

NerdWallet has reviewed more than 35 lenders to help you choose one that’s right for you. Below is a list of lenders that we believe offer the best debt consolidation loans.

How to get a debt consolidation loan

1. Add up current debts and calculate the combined interest rate

The first step in getting a debt consolidation loan is having a clear picture of your current debt. You can use NerdWallet’s debt consolidation calculator to see your total balance, total monthly payment and combined interest rate across all debts.

You’ll want to keep two numbers in mind moving forward: Your total debt, since this is the loan amount you need to apply for, and your combined interest rate, since you’ll want a lower interest rate on your consolidation loan.

2. Pre-qualify and compare loan options

One of the best ways to compare loan offers is to pre-qualify with multiple lenders, which lets you see your potential loan terms, including APR, without any effect on your credit score. Though not all banks or credit unions offer pre-qualification, most online lenders do.

3. Apply for a debt consolidation loan

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

Most loan applications are online and ask you to supply personal information like your Social Security number, address and other contact details. You also may be asked to provide proof of identity, employment and income.

Once you’ve submitted your application, the lender will make an approval decision. If you’re approved, you’ll sign the loan agreement and receive the funds. Funding time varies between lenders, but some lenders can fund the same day you’re approved.

4. Pay off creditors

Here’s the most important step: Use the loan proceeds to pay off your existing debts. Some lenders send the funds to your creditors for you, so you’ll need to provide tài khoản information about your existing debts — and check the accounts to make sure they’re paid off.

If a lender doesn’t offer direct payment, they’ll deposit the funds in an tài khoản of your choosing or mail a check, if you prefer. 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 paid, you’re left with your new loan. Personal loan payments are monthly, though there’s usually no fee for paying off a loan early. Make a plan now to manage your personal loan payments.

As you make progress on paying off your loan, try to keep your credit card balances at or near zero until you’re debt-free. But avoid closing the accounts, which can lower your credit score.

How will debt consolidation affect my credit score?

When you apply for the loan, lenders conduct a hard credit inquiry, which temporarily lowers your score by a few points.

Like other forms of credit, making your loan’s monthly payment on time and in full helps build credit, while missing payments could damage it.

If you took out the loan to pay off credit card debt, but end up carrying a balance on your cards while the loan is still active, your credit score could also suffer since your overall debt has increased.

But as long as you are able to pay off your loan and stay out of debt, consolidation should have a positive overall effect on your credit.

Alternatives to debt consolidation loans

If you’re not approved for a personal loan, there are other options for paying off debt.

Balance transfer card: Borrowers with good or excellent credit can transfer credit card debt to a balance transfer credit card, then pay it off during the promotional 0% APR period, which can last up to 21 months. Most cards charge balance transfer fees, which typically range from 3% to 5% of the amount being transferred.

Credit counseling: If you don’t have good credit, consider nonprofit credit counseling. These agencies can help set up a debt management plan, which consolidates your credit card debts into one monthly payment at a lower interest rate.

Simple debt payoff strategies: Not all debt payoff requires consolidation. You can also use simpler payoff strategies, like the snowball or avalanche methods, to figure out which debt to tackle first, then second and so on until all debts are paid.

Less popular — and riskier — options for dealing with debt include a home equity loan, a 401K loan or, in cases of extreme debt, filing for bankruptcy.

FAQs about debt consolidation loans

Does debt consolidation save money?

Consolidating debt can save money on interest. Plug your existing balances and interest rates into a debt consolidation calculator to see how much you can save with a debt consolidation loan.

What are the risks of a debt consolidation loan?

The risks of debt consolidation include getting a loan that’s more expensive than your current debt or not addressing the root cause of your spending, so you end up in even more debt than before.

How do you qualify for a debt consolidation loan?

Lenders look at credit score, income and debt to qualify you for a debt consolidation loan. A 600 FICO score and a debt-to-income ratio of 40% or lower are typical minimum requirements. Some lenders specifically offer debt consolidation loans for bad credit.

Will a debt consolidation loan hurt my credit score?

Applying for a debt consolidation loan requires a hard inquiry, which can temporarily knock a few points off your credit score. But if you use the loan to pay off debt, then pay off the loan successfully, the overall effect on your credit should be positive.

NerdWallet’s personal loan rating methodology

NerdWallet writers and editors conduct a full fact check of our personal loan ratings and reviews annually, but also make updates throughout the year as necessary.

Our star ratings award points to lenders that offer consumer-friendly features, including soft credit checks to pre-qualify, competitive interest rates and no fees, transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to credit bureaus, and financial education. We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau. We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences.

This methodology applies only to lenders that cap interest rates at 36%, the maximum rate most financial experts and consumer advocates agree is the acceptable limit for a loan to be affordable.