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Keeping control of our finances is one challenging task that most of us find hard to deal with. For many, it’s either because of poor budgeting or unnecessary spending. But is it such a tricky thing to do? If you ask financial experts, they will tell you that it’s not impossible to handle, even if it is so. What if you have several debts that make it more confusing to follow a set financial control procedure? Do not fear; anyone ready to take control of their finances can do so perfectly by following the advice provided on this page. Debt consolidation can be an efficient way of streamlining payments and successfully lowering interest charges. It can also reduce monthly debt payments. In this discussion, you’ll find all the information you should know regarding that subject. We shall review debt consolidation loans in 2023, what to consider before opting for any of them, how they work, and tips for comparisons.
What Is Debt Consolidation?
Perhaps you’re wondering what this so-called debt consolidation is. It is when a borrower takes out a new loan (normally with better terms like lower interest rate and monthly payment) and then uses it to offsets other individual debts. The type of loan is what is therefore called “a debt consolidation loan.” Such a loan is commonly used to pay off credit card balances and other personal balances.
Debt consolidation loans (can also be called personal loans) should help you rationalize payments of other debts and potentially reduce interest charges. Unlike credit cards or other forms of debt like medical loans, these loans often come with lower interest rates, especially if someone has a good or excellent credit score. The best debt consolidation loans offer low annual percentage rates (APRs) and flexible repayment terms while avoiding fees like prepayment penalties.
Best Debt Consolidation Loans In 2023
After knowing what debt consolidation is and the benefits of loans taken for its purpose, do you feel a need to take one? If so, several debt consolidation loans are available, and they have different requirements and benefits. Choosing the most appropriate one (s) will be essential in helping you offset all the other debts you have. Below are some of the best consolidation loans (in no particular order) you can opt for in 2023:
SoFi is an online lending platform that gives fixed-rate loans. It’s considered among the best debt consolidation loan providers with offers of high loan amounts and extended terms. You can get loans between $5,000 and $100,000 and with repayment terms ranging from two to seven years. Borrowers can also get rewarded with low APRs and are not charged origination fees, late fees, or prepayment penalties.
The minimum credit required for qualification for a SoFi loan is 680, and applicants must have a yearly income of at least $45,000. When you get a SoFi loan, the proceeds will be deposited in your bank account for you to pay off the lender (s) since the platform does not allow direct payment to your creditors. The loans also come with various other bonuses and discounts, including unemployment protection and the possibility of changing a payment due date once a year.
SoFi loans are generally for personal, family, and household uses. It means you can use them to cover home developments, medical costs, relocation costs, and credit card consolidation. The turnaround time for these loans is usually a few days after approval or even the next business day, except for loans over $20,000, which take longer. Such factors make SoFi a great deal for those looking for debt consolidation loans.
For peer-to-peer lending, this is a suitable loan. LendingClub is a peer-to-peer lender for personal loans and one of the best for such. It directly pays creditors, thus, saving you the logistics of seeking debt consolidation. Its APR range is between 7.04% to 35.89%, and applicants can borrow from $1,000 to $40,000. With that APR range, it tops other lenders in terms of high APRs, and its loan terms are limited to three or five years.
It does not have a faster funding time and is less flexible concerning the loan terms it offers. Borrowers also have to pay an origination fee of 2%–6% of the total loan amount. To be eligible for the loan, you must have a minimum credit score of 600 and a credit history of three years. Also, the debt-to-income ratio should be less than 40% for single applicants and 35% for joint ones, and proof of income is to be provided. The loan is for personal use only and cannot be used for postsecondary education, illegal activities, or buying investments.
Founded in 2017, Upgrade is a platform that offers accessible online and mobile credit banking services. It has over 10 million users and is rated four stars by those applicants. It directly pays borrowers’ creditors, and the funding process takes up to four business days. Upgrade also makes loans available to people with poor credit history. The maximum interest rates are higher, but loan amounts start from as low as $1,000 and go up to $50,000.
The loan terms are three and five years, and you don’t have to pay a prepayment penalty, meaning you can save money if your objective is to pay off consolidated debts faster. Even so, you’ll have to pay an origination fee of 2.9% to 8% of the loan amount. Those with a minimum credit score of 580 are eligible for this loan type. So, even if you have bad credit, you can still qualify. Unlike most loans, both cosigners and co-borrowers can access this loan. The loan is for personal use and cannot be applied for any other purpose other than that.
For a debt consolidation loan that can help you pay off credit card debt better, FreedomPlus is the one. It offers two flexible terms of two to five years, and the loan amounts are between $7,500 to $40,000. That means that you can easily consolidate a large amount of debt while spreading payments over a long period and lowering monthly payments. Also, FreedomPlus will pay directly to your creditors.
The loan is primarily for personal use, mostly debt consolidation. It can be approved on the same day you apply, and you get the funding within less than 48 hours. The high APR of 8%–30% charged may make it hard to save money for consolidating debt, and, the origination fee between 1.99% to 4.99% can make it more expensive. Eligible applicants should have a credit score of 620 and above and a minimum gross income of $21,500. FreedomPlus does not lend more than 35% of one’s annual income.
A subsidiary of the Goldman Sachs bank, Marcus provides borrowers with loans between $3,500 and $40,000 with terms of three to six years. It allows direct payment to third-party creditors of borrowers. You can benefit from its on-time payment reward and flexible payment dates. Further, with Marcus, you won’t have to pay any fee, including origination fees and prepayment penalties, making it an affordable way to consolidate debts without accruing extra costs.
You can also prequalify with a soft credit pull, making it easier to shop for debt consolidation rates without hurting your credit. The loan is for personal use and cannot be taken for refinancing existing student loans. Its approval can occur in 24 hours or less. However, the funds may take about two to four days to reflect in your account. The minimum credit score required is 660, with those having higher scores eligible for lower rates and better terms. No cosigner or co-applicants can apply for the loan.
Payoff is an online lending platform that links potential borrowers with fixed-rate credit card debt consolidation loans. It assists borrowers in eliminating their high-interest debts and offers direct payments to creditors. Borrowers can get loans as low as $5,000 up to $40,000, making it a flexible alternative for those who want to consolidate high credit card balances. The loan terms are from two to five years, and while there are no late fees or prepayment penalties, there is a 5% origination fee.
Payoff focuses on credit card debt consolidation; hence, it is ideal for those who want to take control of their finances and smoothen their debt repayment. The approval may take three to seven business days after application, and funding will occur within three to six business after that. To qualify for this loan, you need a minimum credit score of 640, a minimum credit history of three years, and a debt-to-income ratio of under 50%. No minimum income requirement is needed but consigning and co-application are also not allowed.
Avant offers secured and unsecured personal loans through a third-party bank called WebBank. It provides a range of repayment options, and it targets middle-income borrowers with fair to good credit. Its maximum loan amount is lower than other lenders, but the repayment terms are flexible between two to five years, making it a great option for borrowers. Its APR range of 9.95% to 35.99% is at the high end for those with a good or excellent credit score. It also charges an administrative fee of up to 4.75% of the loan amount.
Those eligible for the loan should have a minimum credit score of 580. The minimum income requirement for borrowers is $20,000 since the focus is on low and middle-income borrowers. Avant does not permit consigning or co-application. The loan can be used for medical expenses, vacations, and home improvements but not for business expenses. You can also use it to refinance an existing Avant loan with a lower APR if you’re a current borrower.
Best Egg issues personal loans ranging from $2,000 to $35,000 or $50,000. Its repayment terms are available from three to five years, making it a great option for consolidating other debts and spreading out payments over time. Best Egg does not directly pay third-party creditors but deposits the money to borrowers’ accounts for their repayment. It charges an origination fee between 0.99% and 5.99% of the loan amount but no prepayment penalty.
Applicants with a credit score of 640 and above can qualify for this loan, and the loan term, amount, and APR will depend on a borrower’s credit score, credit history, income, and debt payment obligations. As with other lenders, the loan offered can be used for personal uses like credit card refinancing or medical costs’ cover and not other services like conducting illegal activities or postsecondary education expenses. The loan approval and funding can occur within one to three business days after the application.
Upstart offers loan amounts as low as $1,000 up to $50,000. It uses artificial intelligence and machine learning-based techniques for borrower qualification, making it more likely to have more possible borrowers than traditional lending models. The use of AI helps it stand out. The platform requires a minimum credit score of 600 but can even allow applicants without enough credit history to have a score. When evaluating applicants, it considers job history, college education, bankruptcies, residence, number of credit inquiries, and debt-to-income ratio.
It does not permit cosigners and co-applicants. Borrowers should have a full-time job, regular part-time work, or some other income source of not less than $12,000 annually income. The personal loan can take care of credit card refinance and other debt consolidations like relocation, medical costs, or special events. Unlike many other lenders, you can also use the loan for other debts like covering educational expenses. Most applicants receive their funds one business day after accepting the loan terms.
Discover offers customers debt consolidation loans with terms up to seven years, longer than most available loans. Borrowers can qualify for a lower interest rate and get a reduced monthly payment, and the loans are available between $2,500 and $35,000. The lender charges a late payment fee but not any origination fee or prepayment penalties. The funds will also be channeled directly to borrowers’ third-party creditors, saving them time while helping them consolidate their debts.
Prospective borrowers are only eligible if they have a minimum credit score of 660. The platform does not require a minimum credit history length, but the annual lowest household income should be $25,000. The evaluation also occurs based on credit history, latest credit activities, and other credit inquiries. The loans are for personal use and can be used to cover small business expenses. The turnaround time can be as short as one day or longer (up to seven days).
For borrowers with good to excellent credit who don’t want to pay any fees, Lightstream is the ideal lender. The platform doesn’t charge any origination fees or prepayment penalties on their debt consolidation loan. You can get a loan of $5,000 up to $100,000 within the shortest possible time, with funding available even on the same day of approval. It also has the lowest APR starting at 5.93%, with an autopay discount. It also features an online application and debt consolidation loan calculator with a soft credit check, which won’t lower your score.
Fiona is best for bad credit and stands out for providing debt consolidation loan options for individuals with any credit. It has partnerships with LendingClub, Avant, Marcus, and SoFi, enabling it to offer such options at no application fee or prepayment penalty. The application process occurs completely online. Its loan includes refinancing for unsecured loans like auto, mortgage, and student refinance. Fiona also assists customers with information about debt repayment and other financial advice.
It is a peer-to-peer lending platform that offers loan amounts between $4,000 to $25,000. The origination fees start at 1%–5%, and the minimum credit score requirement is 600. The applications are only individual-based, and no joint applicants can qualify. Borrowers can also conduct prequalification and get a loan even with a short credit history. There are no prepayment penalties, and funds take a few business days to reflect in the account after approval.
PenFed is the best lender for those requiring small loans, with its smallest amount starting at $600. The lender has fixed interest rates, an APR starting at 5.99%, and loan amounts can go up to $50,000. Users can also make online applications and check the loan status, make mobile deposits and make transfers using their Android or iOS devices. The loan funds are also reflected in the account after one or two business days once the approval process is over. However, to get a PenFed loan, you must be a member of the credit union and open a savings account.
This is considered a good deal for those with poor to fair credit, but the loan amounts are smaller, and rates are higher. It offers unsecured, fixed-rate loans to borrowers with damaged credit, and there is no penalty for prepayment. You can also use your car or motorcycle as collateral if you do not qualify for an unsecured personal loan. The origination fee charges are 1%–10%, and the loan amount is between $1,500 to $20,000.
How Debt Consolidation Loans Work
Once you identify which platforms or debt consolidation loans are best for your needs, how should you acquire them? First, you will have to apply through your bank or another lender. After the lender has approved the application, it may automatically pay off the debt or give you the cash to pay it off yourself.
Next, after repaying the preexisting debts with the newly acquired debt consolidation loan funds, you’ll make a single payment on the new loan every month. By doing so, you will streamline payments and ease financial management. Debt consolidation works by reducing your monthly payment by extending the loan period of the consolidated loan.
It’s also significant to know your personal loan’s interest rates before opting for it. If it can be more than your current debt rate, then it wouldn’t be wise to take it. Average debt consolidation loan rates depend on multiple factors, including a borrower’s creditworthiness, the loan amount, repayment term, and the lender of choice. The typical interest rates vary from 5% to 36%, with the lowest rates for borrowers with excellent credit.
Guidelines For Comparing Loans for Debt Consolidation
Lenders can also affect the interest rates charged on loans. How can you know which ones will be the most suitable with several lenders available from traditional banks, credit unions, and other lending platforms? You can consider the suggestions for your search and scrutiny of lenders:
- Prequalification. If possible, prequalify. Most lenders provide borrowers the opportunity to prequalify for a loan. Meaning, you can submit details about your financing needs and other needed information to know the loan amount, rates, and terms available. This process does unhurt your credit score, as it’s only about making a soft credit inquiry. So, if you’re uncertain of what you qualify for, perform this process to search for the most appropriate lenders while ruling out those with higher rates.
- Know the purpose of your loan. Since these loans can be used for various personal purposes, it would be best to consider your reason for applying for one. Also, confirm that the use is acceptable to a lender of interest.
- Check out for extra fees. Some lenders do not offer fee-free loans, but instead, they charge additional fees like origination fees, prepayment penalties, late payment fees, or other costs. So, for better loan terms, it’s prudent to inquire about fees when shopping. Especially if you’re planning to save money through debt consolidation, fees can prevent that as they cut into the savings. Also, discover if the origination fee charged is put into the APR or is a part of the loan amount, as it may affect the loan amount you may want to request.
- Consider the lender’s customer support system. One crucial tip to consider before deciding on a lender and signing a loan agreement is what others say about them. Customer support can play an integral role if you face issues with payments or some financial adversity during the repayment period. Hence, review the lender’s customer support system and determine what past and present borrowers are saying about it – whether it’s a reliable and efficient one or not.
How Debt Consolidation Loans Can Affect Your Credit Score
Debt consolidation loans can affect your credit score in varied ways. To qualify for such loans, you require a hard credit check, leading to a small dip in your credit score. Even so, your credit score may reduce if you take out a debt consolidation loan, pay off your credit cards, and then accumulate more debt on those cards.
Consolidation loans can also be an ideal way to restructure your payments, lower monthly debt service and establish healthy financial habits through regular, on-time payments. They can help you enhance your credit score over time, with some lenders even offering credit tools to help their borrowers manage their credit profiles.
Best Debt Consolidation Ways
What are some of the best ways to consolidate debt? They vary for each person and depend on their entire financial situation. Some of them include
- Debt consolidation loans. As we have seen, debt consolidation loans (personal loans) are a way of consolidating numerous debts. The method will help you bring all the debts under one loan and pay them off smoothly. Other alternatives for debt consolidation loans are also available.
- Home equity. Those with sufficient equity in their home can use a home equity loan to help consolidate their debts. However, it’s vital to note that with this option, the house secures the loan, and the lender can repossess it if you fail to pay the loan.
- Debt relief services. Also called debt settlement companies, this is another method to deal with debt for those who cannot qualify for a consolidation loan. The companies reach out to creditors and debt collectors on your behalf and try clearing the debt for a lesser amount. They do so for a certain number of fees, which can be high; thus, research thoroughly and compare several companies properly before applying.
- 401(k) loan. This is a loan taken from one’s personal 401(k) account. You take 50% of your consigned account balance up to $50,000 and have up to five years to repay it.
- Credit counseling. You can also opt for credit counseling provided by nonprofit (but not always) credit counseling organizations. The companies offer debt counseling and a service called DMP (debt management plan). The DMP helps you make a single payment to the company, which then divides it among your creditors and negotiates lower interest rates to help you pay less monthly and clear debts faster. The DMPs sometimes cost some setup fee.
- Balance transfer credit cards. This debt consolidation way is also excellent in streamlining payments and can help avoid interest through the period of payment. It involves a promotional period when highly qualified borrowers access interest-free financing through balance transfer credit cards for one year to over one and a half years. At the end of the promotion, unpaid balances begin accumulating interest.
Are Debt Consolidation Loans a Good Idea?
When can a debt consolidation loan be the best idea? It can benefit you when; – (1) you’re committed to paying off the full amount of debt, (2) you have sufficient cash flow to cover all your debt payments, (3) okay to repay your loans over a longer period, (4) you’ve improved the credit score since taking the last loans, and (5) there’s a financial plan to avoid increasing your debts again.
Debt consolidation loans can be risky, with the biggest risk being the potential to get into deeper debt. If you cannot control the spending that got you into debt in the first instance, no debt consolidation loan will help. The monthly payments can also be high since you’re paying off several debts with the loan; it’s unlike making minimum monthly payments on several credit cards. It will help if you are sure that you can handle the payments until the loan is repaid.
So, before you get a personal loan to offset debts, consider if it’s a good idea depending on your credit score and whether you’re taking other steps to better your financial habits. Failing to pay debts can damage a credit score; hence, a debt consolidation loan can be a good option to pay all individual debts. If you’re facing a challenge in clearing some debts, consider taking such a loan with a lower interest rate to help you.
Who Can Get a Debt Consolidation Loan?
Knowing how debt consolidation loans work and applying for one is not a guarantee that you will get. Lending companies check on various factors to determine whether one is capable of obtaining such loans or not. So, it should not catch you by surprise if none of the many lenders doesn’t approve your loan application. Those who can get such loans must meet the specified requirements by lenders regarding the minimum credit score, income, credit history, and other factors that different companies may consider and, which vary from one lender to another. Thankfully, various companies require varying things; hence, it might not be possible to lack one whose requirements are far from your reach.
The bottom line
Debt consolidation loans are a perfect way to get off debts seamlessly and take control of your finances. Today, several lenders are available to assist interested borrowers with such loans. Are you in need of getting a debt consolidation loan? What if you consider the above discussion and see for yourself which company fits you best? Remember, though that, before you settle on a particular loan, you should have a vast knowledge of how debt consolidation loans work, what lenders look for, how getting them can affect you, and if taking them will help you out of debt. Without proper care and a thought-out financial plan, you risk amassing more debts than offsets existing ones. May your decision be guided by sufficient debt consolidation knowledge and an excellent financial plan to prevent accruing further debts!