You can use personal loans for a lot of different purposes. They can help you cover emergency expenses, finance a home improvement project, or even purchase a vehicle. Yet you might be surprised to learn that, with the right plan and some consistent follow-through, personal loans could potentially help you get out of debt faster.
With debt consolidation loans, you can pay off high-interest debts like credit cards. If your new loan features a lower interest rate than you were paying before, you could save money in interest fees.
Below we’ll cover some of the best personal loans for debt consolidation. You’ll also find information about how debt consolidation loans work and how they can impact your credit.
Best Personal Loans for Debt Consolidation
- LightStream: Best for Good Credit
- Payoff: Best for Fair Credit
- Avant: Best for Bad Credit
- Best Egg: Best Customer Reviews
LightStream is the online lending division of SunTrust Bank. LightStream offers rates starting as low as 5.95% on personal loans for debt consolidation. The rates will vary though by amount of loan and the duration of the loan.
If you qualify, the lender may let you borrow up to $100,000. When you add in the benefit of no fees, LightStream may be an affordable option to consolidate other high-interest debts.
Rates as low as 5.95% on deb consolidation loans when sign up for auto pay
No collateral required to secure the loan
LightStream guarantees to beat any qualifying rate from another lender (restrictions apply)
Good credit is needed to qualify
No pre-approvals—you must allow a hard inquiry of your credit report to check your rate
Minimum interest rate increases to 6.99% if you borrow over $50,000
Other Important Information About Lightstream
- Minimum/maximum amount you can borrow: $5,000 to $100,000
- APR range: 5.95% – 16.79% for consolidation loans (6.99% minimum for loans over $50,000)
- Fees: LightStream doesn’t charge borrowers any fees. (Florida loans are subject to Documentary Stamp Tax.)
- Minimum credit requirement: Reported to be 660, but not disclosed on LightStream’s website
- Other qualification requirements: LightStream looks for borrowers with “good credit.” The lender defines good credit as several years of credit history, a mixture of account types, and few delinquencies. An ability to save, stable income, and an acceptable debt-to-income ratio are also keys to qualifying for a loan.
- Repayment terms: Debt consolidation loans must be repaid between 24 and 84 months.
- Time to receive funds: Funds possibly deposited in your account the same day you apply.
- Restrictions: If you earn income from the cannabis industry, LightStream won’t count those earnings for loan qualification purposes. You can’t refinance an existing LightStream loan with a new one. There are also restrictions on how you use the loan. For example, funds can’t be used to cover educational or business expenses.
The Payoff platform helps people who want to consolidate credit card debt find lenders that may be willing to help. Interest rates from Payoff Lending Partners start as low as 5.99%. You can borrow up to $35,000 if you qualify. Borrowers will also receive a free monthly update of their FICO Score.
Borrow with a fair credit score (as low as 640), if you can satisfy other loan requirements
Few fees apply. Loans include no application fee, prepayment penalty, late fee, or annual fee
A soft credit inquiry allows you to check your rate online
Limitations on how you use funds — consolidate credit cards and certain unsecured installment loans only
Origination fees of up to 5% may apply
Minimum rate increases to 6.99% if you need to borrow more than $15,000
Other Important Information About Payoff
- Minimum/maximum amount you can borrow: $5,000 to $35,000
- APR range: 5.99% – 24.99% (6.99% minimum for loans over $15,000)
- Fees: Origination fees range between 0% and 5%.
- Minimum credit requirement: 640 FICO Score
- Other qualification requirements: To qualify, you’ll need a debt-to-income ratio of 50% or lower, 3 years (or more) of good credit history, at least 2 open tradelines that you’ve paid on time, and zero delinquencies on your credit report in the past 12 months.
- Repayment terms: Select terms between 2 to 5 years.
- Time to receive funds: Not disclosed
- Restrictions: Payoff loans aren’t available to residents of the following states: Massachusetts, Mississippi, Nebraska, Nevada, and West Virginia.
Avant, through its relationship with WebBank, offers and services personal loans for qualified borrowers. The company has issued over 800,000 loans since it was founded in 2012.
Personal loans from Avant may be a good fit for middle-income borrowers who don’t have perfect credit histories. Rates start at 9.95% and climb up to 35.99%. That’s admittedly high compared with the APR range some other lenders offer. Yet bad credit borrowers could potentially save money with an Avant personal loan versus other high-rate financing options, like credit cards.
No prepayment penalties
Avant performs a soft credit inquiry when you first check your loan rates and terms
Easy-to-use app lets you manage your account on a mobile device
APR is high compared to what you might qualify for somewhere else, if you have good credit
Upfront administration fee (up to 4.75%) comes directly out of your loan
35.99% maximum APR plus upfront fees might make consolidating too expensive to make sense
Other Important Information About Avant
- Minimum/maximum amount you can borrow: $2,000 to $35,000 (Minimums vary by state.)
- APR range: 9.95% – 35.99%
- Fees: Avant charges an administration fee of up to 4.75%. Late fees and dishonored payment fees could apply as well.
- Minimum credit requirement: Most qualified applicants have a minimum score of 600 to 700.
- Other qualification requirements: Avant considers your credit score and income to determine if you qualify for a loan and, if so, how much you can borrow. The lender may need to verify information about your identity, employment, income, and bank account as part of the application process.
- Repayment terms: 24 to 60 months
- Time to receive funds: Funds are usually available by the next business day.
Best Egg is an online lending platform that helps borrowers find personal loans they can use to consolidate debt and for other purposes. The platform has funded over 600,000 loans (through FDIC-insured Cross River Bank) since it was founded in 2014.
Fixed-rate loans with Best Egg start as low as 5.99%. Qualified borrowers may access up to $35,000 in funding. Best Egg has an A+ rating with the Better Business Bureau. The BBB also ranks Best Egg as a five-star company based on an analysis of over 2,500 customer reviews.
A fair credit score (over 640) may be sufficient to qualify, but not at the lowest rates
No prepayment penalty
A soft credit inquiry when you check your loan rate
Lowest rates aren’t available to all borrowers — just high-income earners with good credit
Lowest rates aren’t available to all borrowers — just high-income earners with good credit
Low maximum loan amount compared with some other lenders (especially if you have good credit and high income)
Other Important Information About Best Egg
- Minimum/maximum amount you can borrow: $2,000 to $35,000 (Potentially borrow up to $50,000 with special offers.)
- APR range: 5.99% – 29.99%
- Fees: Best Egg charges an origination fee of up to 5.99%. Late payments and returned payments also incur fees of $15 each.
- Minimum credit requirement: Borrowers need a FICO Score above 640. A credit score of 700 or higher and at least $100,000 in annual income is necessary to qualify for the lowest APR.
- Other qualification requirements: In addition to your credit score and income, Best Egg also reviews your debt-to-income ratio. If your income is higher than your debt, you may qualify.
- Repayment terms: 36 to 60 months
- Time to receive funds: 1 – 3 business days
- Restrictions: Loans are not available to residents of Iowa, Vermont, West Virginia, or the U.S. Territories.
What Is Debt Consolidation?
Debt consolidation is the process of combining several debts you already owe together into a single, new account. Once combined, you make one monthly payment to take care of your total credit obligation.
The term debt consolidation can describe a few different approaches to combining debts, including:
- Applying for a new consolidation loan to refinance existing debt
- Using a credit card balance transfer to consolidate debt
With both approaches above, debt consolidation can roll several existing financial obligations into one. Ideally, with either option, your goal should be to obtain a lower interest rate and better terms.
How Does Debt Consolidation Work?
In general, debt consolidation is limited to unsecured credit obligations. These may include credit cards, student loans, and unsecured installment loans you currently owe. Medical bills may also fit into this category. However, if you want to refinance a secured loan, like a mortgage, you’ll generally need to look at different financing options.
There are a few common ways to consolidate unsecured debts. The chart below features highlights and a comparison of two of the most popular debt consolidation options.
Debt Consolidation and Your Credit
People commonly have two main questions when they consider debt consolidation options:
- How much will it cost?
- How will it impact my credit?
The first question can only be answered with research and rate shopping. Yet it’s a bit easier to explain how debt consolidation may affect your credit.
Do Debt Consolidation Loans Hurt Your Credit?
Debt consolidation loans may be good for your credit scores, depending on the information on your credit reports. Credit scoring models, like FICO and VantageScore, pay close attention to the debt-to-limit ratio (aka credit utilization ratio) on your credit card accounts. When your credit reports show that you’re using a larger percentage of your credit limits, your scores may suffer.
Installment accounts, like consolidation loans, don’t receive the same treatment where credit scores are concerned. Imagine you owe $30,000 on an installment loan and $3,000 on a credit card with a $3,000 limit. Because the credit card is 100% utilized, it would likely impact your credit scores far more (and not in a good way) than the $30,000 installment account.
When you pay off revolving credit card debt with a debt consolidation loan, you may trigger a decrease in your credit utilization ratio. That reduction in credit utilization could result in a credit score increase. Additionally, your credit scores can be impacted by the number of accounts with balances on your credit report — the fewer, the better. When you use a new loan to pay off multiple accounts at once, it could potentially give your credit scores a small boost.
Do Balance Transfers Hurt Your Credit?
Opening a new credit card and using a balance transfer to pay off existing credit card debt may also lower your credit utilization ratio. However, a balance transfer card is still a revolving account. A debt consolidation loan might reduce your utilization ratio to 0% (if you paid off all of your credit card balances). A balance transfer to a new credit card won’t have the same effect.
So, a credit card balance transfer could potentially improve your credit scores. But in general, paying off revolving credit cards with an installment account (aka a debt consolidation loan) has a chance to improve your scores more.
Is Debt Consolidation a Good Idea?
Here are a few signs that consolidating your debt might be a smart financial move.
- Your monthly payments are manageable, but you can’t afford to pay off your high-interest debt in full within the next few months.
- You can qualify for a lower interest rate than you’re paying on your current credit obligations.
- You’re paying down your debts and believe consolidating will help you to eliminate outstanding balances faster.
- You have a steady income, follow a budget, and believe you can avoid overspending in the future.
Only you can decide if debt consolidation is the right choice for your current financial situation. But considering some of the pros and cons of debt consolidation may make your decision a little easier.
Debt consolidation could reduce the amount of money you pay in interest. The average rate on an interest-assessing credit card is 16.97%. Meanwhile, the average interest rate on a 24-month personal loan is 10.07%, according to the Federal Reserve.
Consolidating your debt might improve your credit. When you reduce your credit utilization ratio and the number of accounts with balances on your credit reports, your credit scores might benefit.
You only have to make one monthly payment to your new lender. This is easier to manage than multiple payments on various accounts.
Debt consolidation doesn’t wipe out your debt. You’ll have to follow a budget and avoid overspending if you want your new consolidation loan (or balance transfer card) to eliminate your debt for good.
If you have credit or income challenges, you may have trouble qualifying for a lower interest rate. There’s usually little point in consolidating your debts if a new loan or balance transfer won’t save you money.
A debt consolidation loan has the potential to help you improve your financial life. But whether a debt consolidation loan ultimately helps or hurts you depends on how you manage the account and your finances as a whole.
Above all, avoid the temptation to charge new balances on your recently paid-off credit cards. If you charge up new balances on the original accounts, you could be setting yourself up for a financial disaster in the future.
At Investopedia our mission is to provide readers with unbiased, comprehensive financial product reviews they can trust. We’ve researched dozens of personal loan options and compared interest rates, APRs, fees, qualification requirements, and other features. This research helps us find and share some of the best offers currently available with you. Our goal is to provide you with the knowledge you need to make well-informed decisions when you’re ready to borrow.