Credit card debt is common, and sometimes we end up in over our heads before we even realize it. Show
The average credit card balance is $5,315, according to Experian's latest data. And while that number has dropped since 2019, even debt in the low four-figures can cost you a lot in interest when you only make the minimum payment. If you're stuck in a no-win situation with credit card debt you can't afford to pay off (but also can't afford not to), a personal loan for debt consolidation might be your ticket out. Debt consolidation also helps people with multiple student loans lump them together into one loan, ideally with a lower interest rate. One obvious draw of using a personal loan for debt consolidation is that it helps you avoid getting overwhelmed by too many bills and too many different due dates. Imagine taking all those payments you're juggling and streamlining them into one monthly bill. That's one of the big benefits of a debt consolidation loan. However, there are a few considerations to make when looking for the right debt consolidation loan. You'll want to make sure you are getting the best interest rate and that the repayment plan works within your budget. Select rounded up the top personal loans for debt consolidation, looking at fees, interest rates and flexible repayment options for different credit scores. (Read more about our methodology below.) We tried to prioritize loans with no origination or sign-up fees, but we also included options for borrowers with lower credit scores. Some of the options ahead have origination fees and/or APRs — make sure you understand the terms of the loan before you sign up. For loans with no origination fees, check out our best personal loan list. Select's picks for best debt consolidation loans
Find the best personal loansDebt consolidation loans FAQs
Best for student loan consolidationSoFi Personal Loans
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Best for fair/average creditUpstart Personal Loans
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Best for consolidating debt while improving financial literacyUpgrade Personal Loans
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Why Upgrade is the best for financial literacy:
Best for paying creditors directlyMarcus by Goldman Sachs Personal Loans
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Best for staying motivatedHappy Money
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How Payoff is designed to help you stay motivated:
*Based on a study of Happy Money Members between February 2020 to August 2020, members who use a Happy Money Loan to eliminate at least $5,000 of credit card balances reportedly see an average FICO Score boost of 40 points. (Results may vary and are not guaranteed.) Best for good to excellent creditLightStream Personal Loans
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Best for joint applicantsProsper Personal Loans
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Debt consolidation FAQsWhat is a debt consolidation loan?A debt consolidation loan is a personal loan that's used to pay off existing debt across other accounts, including credit cards, student loans and other installment loans. Debt consolidation loans should not be confused with debt settlement or debt negotiation. If you want one of these loans, most lenders require that you:
What are the benefits of consolidating debt?Debt consolidation loans don't come with a money-saving guarantee, though with a lower APR, they certainly can shave off some interest charges. People who use debt consolidation loans successfully can often save money when they stick to their new, simplified payoff plan and refrain from using their old credit cards to rack up new debt. Personal loans are most useful when you consolidate credit card debt that has very high APRs. Take this Chase cardholder, for instance: With a 25.74% APR, it would take the cardholder 21 years to pay off a balance of $5,311.57 if they only paid the minimum each month. They would end up paying a total of $15,891 including interest. Now just imagine if they had two or three credit cards with similar balances and APRs. The average personal loan interest rate is currently 9.65% APR. While that's still high, it's still much less than the average credit card APR of 16.28%. Does debt consolidation hurt your credit score?Consolidating your debt into a personal loan can have a positive impact on your credit score and overall finances, but it's important to understand the process so you can ensure the greatest benefit. Debt consolidation will impact your credit score and credit report in the following ways:
Personal loan applications require a credit check, so you'll want to make sure you know your credit score before you apply. There's no direct penalty for getting denied a loan but having too many applications on your credit report could be a red flag to future lenders. How does debt consolidation work?Personal loans deliver cash directly to your bank account, which you then use to pay off your existing debt. Within 30 days, you'll start making a fixed monthly payment on the new loan until all of the debt is paid off. Most personal loans come with fixed-rate APRs, so your monthly payment stays the same for the loan's lifetime. In a few cases, you can take out a variable-rate personal loan. Before you choose this option, make sure you're comfortable with your monthly payments changing if rates go up or down. Personal loan APRs average 9.65%, according to the Fed's most recent data. Meanwhile, the average credit card interest rate is around 16.28%. Your interest rate will be decided based on your credit score, credit history and income, as well as other factors like the loan's size and term. Most loan terms range anywhere from six months to seven years. When choosing your repayment terms, pick the monthly payment that fits best with your budget, but also note how much interest you'll pay over the lifetime of the loan. Be sure to check if the lender charges an early payoff or prepayment penalty, especially if you think you might pay your loan down faster than your agreed-upon term. Sometimes, lenders charge a fee if you make extra payments to pay your debt down quicker, since they're losing out on that prospective interest Once you're approved for a personal loan, the cash is usually delivered directly to your checking account within a week or less. You can sometimes ask your lender to pay your credit card accounts directly. Any extra cash leftover will be deposited into your bank account or returned to the lender. Do you have to close credit cards after debt consolidation?You can keep your credit cards open even after you take out a debt consolation loan. Ideally, you should use your loan to pay off credit card debt, then use credit cards only to pay for what you know you can afford to pay off at the end of each month. If you're worried about racking up credit card debt all over again, look into how closing the account(s) will impact your credit score. You might decide to keep one or two cards open for emergencies or daily spending, and close the rest of your credit cards. Use a credit score simulator like CreditWise from Capital One to see how much your score might drop before you start closing accounts. Our methodologyTo determine which personal loans are the best for consolidating debt, Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions. When possible we chose loans with no origination or sign-up fees, but we also included options for borrowers with lower credit scores on this list. Some of those options have origination fees. When narrowing down and ranking the best personal loans, we focused on the following features:
Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee your interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more. *Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.99% APR with a term of three years would result in 36 monthly payments of $295.20. Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party. Is a personal loan a smart way to consolidate debt?Consolidating debt with a personal loan can be a good idea if you can get a new loan with favorable terms and a lower interest rate than current debt. Whether you can qualify for a consolidation loan depends on your credit scores, income and other financial factors.
What kind of loan do I need to consolidate debt?You can use an unsecured personal loan from a credit union, bank or online lender to consolidate credit card or other types of debt. Ideally, the loan will give you a lower APR on your debt.
Do debt consolidation Programs hurt your credit score?Debt consolidation loans can hurt your credit, but it's only temporary. The lender will perform a credit check when you apply for a debt consolidation loan. This will result in a hard inquiry, which could lower your credit score by 10 points. Hard inquiries will only affect your credit score for one year.
Is debt consolidation a good reason to get a loan?Taking out a debt consolidation loan may help put you on a faster track to total payoff, especially if you have significant credit card debt. Credit cards don't have a set timeline for paying off a balance, but a consolidation loan has fixed monthly payments with a clear beginning and end to the loan.
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