In this article, you will learn about the best debt consolidation loans available. These are the loans that offer competitive rates, give you access to the money you need when you need it, and have low to no fees. Below, we have listed the top five lenders based on their loan amounts, APR, fees, and credit requirements. We hope this helps you choose the best debt consolidation loan for your needs. To get started, fill out our free application.
If you have bad credit, consider an unsecured personal loan. They are easy to qualify for, provide funding quickly, and offer low interest rates. If you have poor credit, you may want to consider other financing options, such as a home equity loan. Typically, home equity loans have lower interest rates than unsecured personal loans. Using your home equity to consolidate your debt can also benefit you financially. And, if you are looking to build your credit, consider applying for a home equity loan. This type of loan typically offers lower interest rates and a longer term.
SoFi is another great option for debt consolidation loans. This company pays your creditors directly. This will minimize the temptation to use cash to make purchases. SoFi is also free of fees and accepts co-signers. It also offers no credit-impact prequalification, which lets you shop around for the best loan terms. Fortunately, they also offer a financial education package. This makes the process easier than ever. But, keep in mind that applying for debt consolidation loans may negatively impact your credit score.
While there are many reasons to use a debt consolidation loan, it’s best to avoid a loan that involves credit cards. Most people who consolidate their debt want to avoid owing money to their credit card companies. However, some people are committed to paying off their debt, and a balance transfer credit card with 0% APR may be worth considering. This is not the best debt consolidation loan, but it may be right for you if you have the commitment to make payments on time.
LightStream is another option, as it offers a wide range of debt consolidation loans. You can choose from a $5,000 to $100,000 loan, with repayment terms from two to seven years. They also have flexible loan terms, including deferred interest on payments for up to 12 consecutive months. OneMain Financial is another option, though their minimum credit score is lower than most other debt consolidation loan options. This option may be better for you if your credit is good.
Some for-profit companies offer debt settlement programs that help consumers eliminate their debt and get lower interest rates. However, these debt consolidation loans have high fees, high interest rates, and damage your credit history. Considering your options is essential to avoid scams and find the best debt consolidation loan for your needs. There are plenty of debt consolidation loan options available, but you must be aware of scams to avoid. Red flags to look out for include aggressive sales representatives, quick-fix promises, and upfront payments before a loan is approved.
Credit card debt remains a slow-motion disaster for millions of Americans. As of the third quarter of 2021, Americans held $800 billion in credit card debt, with an estimated 3.2% of that pile flowing into major delinquency, according to the Federal Reserve Bank of New York. And, given the credit card industry’s sky-high interest rates, once you fall behind on payments, it can be difficult to catch up.
If you feel like your efforts to pay down your credit card debt aren’t working, debt consolidation can combine all of your credit card balances into one monthly payment, ideally with a lower interest rate. There are a number of consolidation strategies worth exploring and we’ll run you through each to help you identify which is best for you.
1. Balance transfer card
Best for those with high credit scores who can repay their debt within 1-2 years
A balance transfer credit card consolidates your existing credit card debt onto one card with one main benefit — a low introductory interest rate. Most will offer a 0% introductory APR on balance transfers for between 12 – 24 months, allowing you a longer timeline to pay down your debt without worrying about interest. Balance transfer cards often charge a fee for each balanced transferred — typically between 3% to 5% — which can really add up when transferring large balances.
Lock in 0% or low introductory APR for a year or more
Some cards offer long introductory periods, up to 24 months
Most cards with low or no intro APR charge balance transfer fees between 3% to 5%
Can lead to more debt at a higher APR if the balance is not paid off during the promotional period
Typically requires great or excellent credit to qualify for 0% APR
2. Debt consolidation loan
Best for anyone with high debt balances
A debt consolidation loan is an unsecured personal loan that offers a fixed interest rate lower than most credit card APRs and repayment terms spread out over several years. This type of loan may be a better option for those who can’t qualify for a balance transfer credit card with a 0% introductory APR. You can even prequalify for a debt consolidation loan without affecting your credit score, so you can decide if this debt consolidation method is right for you.
Credit unions, banks, and online lenders usually offer debt consolidation loans — credit union debt consolidation loans typically have better interest rates and more flexible loan terms than other lenders. Shopping around for debt consolidation loans can help you find the right terms for your personal debt situation.
Fixed repayment schedule
Longer period to pay off debt
May be able to prequalify without affecting credit score
Lower interest rate than most credit cards
Can secure a debt consolidation loan with less than perfect credit
Must meet individual lender requirements to qualify
Some debt consolidation loans charge an origination fee
Interest rates are based on your credit score
3. Home equity loan, home equity line of credit (HELOC) or refinance
Best for homeowners with fair to average credit
Homeowners can use a home equity loan, home equity line of credit or refinance to consolidate their debt. A home equity loan is a second mortgage taken against the equity you’ve accrued in your home that provides a lump sum of cash with a fixed interest rate. A home equity line of credit, or HELOC, is also based on your home’s equity but works more like a credit card, offering you a revolving credit line you can access when needed. You’ll only pay back the amount you take out, plus interest, with a HELOC. And, if you have enough equity in your home, you can use a cash-out refinance to roll your credit card debt into a significantly lower interest rate.
A home equity loan or HELOC can help with debt consolidation, but the risks are higher — if you default on either, you could lose your home to the lender. That said, this can be a good option for homeowners with equity in their home that have the discipline to pay off the loan responsibly, without missing a payment.
Typically lower interest rates than a personal loan
May qualify for better terms even without good credit
Lower monthly payments extended over a longer repayment period
Must have equity in your home to qualify
May require additional fees like an appraisal or closing fees
Could lose your home if you default on the loan or line of credit
4. Credit counseling/debt consolidation programs
Best for anyone who doesn’t qualify for most debt consolidation options
Credit counseling services can help you understand your finances and how you got into credit card debt in the first place. They also help you create a plan to pay off your debts, which may include a debt consolidation program. There are various nonprofit credit counseling services, which offer their services for free or a small fee. Credit counselors can also help you negotiate lower interest rates and fees.
With a debt consolidation program, you pay one fixed monthly fee that’s divided and sent to your creditors. A debt consolidation program does not affect your credit score and may be ideal for someone who can’t qualify for other consolidation methods. There are many credit counseling scams online, so be sure to thoroughly vet a company before paying any money. The FTC has a good checklist to follow when interviewing credit counseling services.
Won’t negatively impact your credit score
Can reduce interest rates and fees
Fixed monthly payments
Available to those with less than favorable credit
May require service and monthly fees unless working with a nonprofit organization
Could takes years to pay off debt
Credit usage may be frozen while in debt management
5. 401k loan
Best as a last resort
If you have an employer-sponsored retirement plan like a 401(k), you may be able to take a loan against as much as 50% of your balance to pay down existing debt. There is no credit check involved, and interest rates can be lower than other debt consolidation methods. A 401(k) loan usually has a five-year repayment schedule, but the total loan amount plus interest will become due if you lose or quit your job.
While taxes are not owed on a 401k loan that’s repaid, if you can’t repay the loan, it can then be considered taxable income, and you’ll be required to pay taxes and early withdrawal penalty fees.
Lower interest rates
No effect on credit score
Five-year, fixed repayment schedule
May reduce your retirement income
Subject to taxes and penalties if you can’t repay
Becomes due in full if separated from the employer
Has caps on the amount you can borrow
Credit card debt is very common these days. It occurs when a consumer of a credit card company buys something or avail a service via the credit card system. When the consumer doesn’t pay back the company for the cash that he or she has invested, debt accumulates and grows through interest and other charges.
The problem with credit card debt payments is that you may not have the money to make the monthly payments every month. This makes it difficult for you to fulfill your basic needs every month. The constant rise in the price of goods and services makes it impossible for you to meet your expenses every month. You may be in a situation where you have to sell your assets just to pay your debt payments every month. That will leave you with very little money to survive and squeeze out of every paycheck that goes out of your account.
For such situations, it is better to close your account rather than taking up a new line of credit. Closing the account provides a number of advantages which can be of great help to borrowers who find it difficult to keep up with the payments on credit cards. Here are some of the benefits that can be availed by borrowers:
* Closing the account helps borrowers reduce the number of credit card debt payment that they have to make every month. As mentioned earlier, when borrowers pay a few percentage points more interest, the amount they owe increases. This means that the amount they have to pay every month is increased. If you have an account with considerable outstanding balances, then closing it can be quite helpful.
* Borrowers with higher debts usually pay a high rate of interest. Paying off substantial portions of outstanding credit card debt is one of the best ways to rapidly improve credit ratings. It also helps borrowers to quickly recover from any financial problem. A large portion of your credit card debt does carry some of the industry s highest interest rates. However, paying off a significant portion of this debt quickly is one of the best ways to rapidly improve your financial ratings.
* Credit card debt can affect negatively your FICO score. However, if you regularly use your credit cards, this score will gradually improve. Therefore, in case of credit card debt, it is advisable to close credit card accounts. In addition, it is advisable to manage existing credit limits sensibly.
* Many of the credit bureaus, such as Experian and TransUnion do not disclose important information regarding credit card debt. For example, when a borrower uses trade lines, the payment details do not appear on his credit report. Therefore, it is essential that borrowers check their reports for important details such as trade lines. In this regard, consumers are advised to contact both the credit reporting agencies and the trade lines for accurate and complete details.
* Most importantly, a good strategy is to maintain a consistent and reasonable payment schedule. This will improve your credit score considerably. The credit bureaus and lenders use this information in determining a borrower is credit score.
* When considering interest rates, consumers are advised to choose lenders with low interest rates. While this does not eliminate all options, this can be a great starting point. If a person finds that he is paying high interest rates on credit card debt consolidation loans, he should consider refinancing so as to pay lower interest rates.
* Many consumers use their credit cards to pay for entertainment purposes. Therefore, it is important that a person does not increase his credit card debt. A wise move would be to limit credit card balances. To help reduce the debt burden, it is advisable to first put a stipulation on spending, such that a consumer cannot buy anything more than he can afford.
* For people who are not confident about their ability to handle credit card debt, it is advisable to get a debt consolidation company. This way, a consumer will not only get a better interest rate, but also will be able to pay off the debt within a stipulated time period. It is a good idea to get as much information as possible about the various options that a person has to reduce credit card debt. The Internet is a good source of information. Other sources include credit counselors, friends, and newspapers. These sources can provide an insight as to how different options can be used to get rid of outstanding bills.
Personal Loans Vs Credit Card
When you need quick access to funds, personal loans and credit cards are the most common options. There is no universal answer as to which is the best type of credit – it all depends on your current needs and capacity to repay. Credit cards got a bad reputation, due to people constantly abusing their limits, but they’re not always a bad choice.
Various Aspects to Consider
The very first thing you notice are the interest rates, but that’s not the only thing that matters. Remember that the interest rates on your credit cards can change when the lender feels appropriate; usually, they are only required to notify you a couple of weeks in advance, and that’s all. On a loan, however, fixed rates remain fixed for the entire term. On the other hand, some credit cards have a interest-free period, and, if you manage to repay your debt before that period expires, you will make significant savings.
Credit cards are particularly useful if you’re self-employed, and you cannot get a very good deal on a personal loan. Cards are more flexible, which means you can borrow more one month, and repay more when your financial situation improves, and so on. For people with a fixed monthly income, a bad credit loan may be more suitable, since it’s easier to organize the budget around fixed payments.
The period for which you need to borrow money also plays a significant part in making the best decision. If you need a large amount now, and you want to distribute the repayments over a long period of time, then a loan is naturally the best solution. Of course, the interest rate will continue to accumulate, and therefore the long-term solution is always more expensive; but, since the monthly rates are lower, it’s also easier to cope with it.
Credit card debt remains a slow-movement catastrophe for hundreds of thousands of Americans. As of the 1/3 quarter of 2021, Americans held $800 billion in credit card debt, with an anticipated three.2% of that pile flowing into primary delinquency, according to the Federal Reserve Bank of New York. And, given the credit card enterprise’s sky-high interest costs, when you fall behind on payments, it is able to be difficult to trap up.
If you sense like your efforts to pay down your credit score card debt aren’t running, debt consolidation can integrate all of your credit score card balances into one month-to-month price, ideally with a decrease hobby fee. There are some of consolidation techniques well worth exploring and we’ll run you thru each to help you pick out that’s nice for you.
1. Balance transfer card
Best for people with high credit ratings who can repay their debt within 1-2 years
A stability switch credit score card consolidates your current credit card debt onto one card with one principal benefit — a low introductory hobby rate. Most will provide a 0% introductory APR on balance transfers for between 12 – 24 months, allowing you a longer timeline to pay down your debt without traumatic approximately interest. Balance switch playing cards often charge a charge for every balanced transferred — normally between three% to 5% — which can really add up when shifting massive balances.
Lock in zero% or low introductory APR for a 12 months or more
Some playing cards offer lengthy introductory periods, as much as 24 months
Most cards with low or no intro APR fee stability transfer expenses among three% to 5%
Can cause more debt at a better APR if the stability isn’t paid off at some point of the promotional length
Typically requires splendid or outstanding credit score to qualify for zero% APR
2. Debt consolidation loan
Best for every person with excessive debt balances
A debt consolidation mortgage is an unsecured private loan that gives a fixed hobby charge decrease than maximum credit card APRs and reimbursement phrases spread out over several years. This form of loan can be a better alternative for those who can’t qualify for a balance switch credit score card with a 0% introductory APR. You may even prequalify for a debt consolidation mortgage with out affecting your credit rating, so that you can decide if this debt consolidation technique is proper for you.
Credit unions, banks, and on-line lenders typically provide debt consolidation loans — credit union debt consolidation loans normally have higher interest rates and extra flexible mortgage phrases than other creditors. Shopping around for debt consolidation loans can help you locate the right terms for your personal debt situation.
Fixed reimbursement schedule
Longer period to repay debt
May be capable of prequalify without affecting credit score score
Lower hobby price than most credit score playing cards
Can secure a debt consolidation mortgage with less than perfect credit
Must meet man or woman lender requirements to qualify
Some debt consolidation loans charge an origination price
Interest quotes are primarily based on your credit rating
3. Home equity loan, home fairness line of credit (HELOC) or refinance
Best for homeowners with fair to average credit score
Homeowners can use a domestic equity mortgage, domestic fairness line of credit or refinance to consolidate their debt. A domestic equity mortgage is a 2d loan taken in opposition to the equity you’ve accrued in your property that offers a lump sum of cash with a hard and fast interest charge. A home fairness line of credit, or HELOC, is likewise primarily based on your private home’s equity however works greater like a credit score card, imparting you a revolving credit score line you could get entry to while needed. You’ll most effective pay returned the quantity you’re taking out, plus hobby, with a HELOC. And, when you have enough fairness in your private home, you may use a cash-out refinance to roll your credit card debt right into a substantially decrease interest charge.
A domestic fairness mortgage or HELOC can help with debt consolidation, however the dangers are better — if you default on either, you can lose your property to the lender. That said, this could be a terrific alternative for homeowners with fairness in their home which have the field to repay the loan responsibly, with out lacking a charge.
Typically decrease interest fees than a personal mortgage
May qualify for higher phrases even without desirable credit score
Lower monthly bills extended over an extended compensation duration
Must have fairness in your home to qualify
May require extra charges like an appraisal or ultimate fees
Could lose your home if you default at the mortgage or line of credit score
4. Credit counseling/debt consolidation applications
Best for anybody who doesn’t qualify for most debt consolidation alternatives
Credit counseling services assist you to apprehend your budget and how you got into credit card debt inside the first region. They also help you create a plan to repay your money owed, which may additionally include a debt consolidation software. There are various nonprofit credit score counseling offerings, which offer their services without cost or a small fee. Credit counselors also can assist you negotiate decrease hobby fees and charges.
With a debt consolidation software, you pay one constant monthly charge that’s divided and despatched for your creditors. A debt consolidation application does not have an effect on your credit score score and can be ideal for someone who can’t qualify for other consolidation strategies. There are many credit score counseling scams on line, so be sure to very well vet a organisation earlier than paying any money. The FTC has a very good tick list to follow while interviewing credit score counseling services.
Won’t negatively impact your credit rating
Can lessen interest costs and costs
Fixed monthly bills
Available to people with less than favorable credit score
May require carrier and month-to-month expenses unless running with a nonprofit enterprise
Could takes years to repay debt
Credit utilization may be frozen whilst in debt control
5. 401k loan
Best as a ultimate lodge
If you’ve got an organisation-sponsored retirement plan like a 401(okay), you will be capable of take a mortgage towards as lots as 50% of your stability to pay down existing debt. There is no credit check worried, and hobby prices may be decrease than other debt consolidation strategies. A 401(ok) mortgage normally has a five-year repayment agenda, however the total loan quantity plus hobby becomes due in case you lose or end your activity.
While taxes aren’t owed on a 401k loan that’s repaid, if you may’t repay the loan, it can then be considered taxable earnings, and also you’ll be required to pay taxes and early withdrawal penalty charges.
Lower interest fees
No effect on credit score score
Five-yr, constant reimbursement agenda
May lessen your retirement profits
Subject to taxes and consequences if you may’t pay off
Becomes due in full if separated from the company
Has caps on the quantity you could borrow