Are you stuck under an overwhelming pile of consumer debt? Do you feel like it might be impossible to get out? Fortunately there are tools that can help you get out of debt faster.
A debt consolidation personal loan could be a good answer. With a personal loan, you would use the loan proceeds to pay off credit card debt, medical debt or any other form of debt. You would then have a loan at a fixed interest rate and a fixed term.
Debt consolidation provides three benefits:
- Make payments simple: If you owe a lot of lenders and are having a tough time keeping track of all the payments, then consolidating will make your life easier. You’ll only owe one lender and have to keep track of one due date. There’s less of a chance of anything falling through the tracks.
- Lower your interest rate: This is where you have to run the numbers to see if debt consolidation makes sense for you. What’s the average interest rate you’re paying on your debt? If it’s quite high (which is likely if you have a lot of consumer debt), you may benefit from consolidating under better terms. Just remember to only use a personal loan if the interest rate is lower than the one you are already paying.
- Improve your credit score: If your credit cards are currently maxed out, your credit score will suffer. When you pay off your credit card debt with a personal loan, you will often receive a boost to your credit score, so long as you don't start using your cards again. LendingClub did a study and determined that there is an average score increase of 21 points within three months for people who use loans to eliminate credit card debt.
If you think debt consolidation makes sense for your situation, we have a list of the best debt consolidation loans you can use to refinance your consumer debt. Read on for our recommendations.
Personal Loans to Consolidate Credit Card Debt
Start Shopping Here - LendingTree
At LendingTree, you can make dozens of personal loan companies compete for your business with a single online form. When you fill out the form, LendingTree will do a soft credit pull - which means your score will not be negatively impacted. Dozens of lenders will compete and you may be matched with lenders who want your business. You may be able to compare and save in just a few minutes. We recommend starting here. You can always apply directly to other lenders - but many of the lenders we recommend already participate in the LendingTree personal loan application tool. (Note: LendingTree owns MagnifyMoney)
Below are some leading lenders you could also consider:
SoFi - Excellent Credit Required
You can borrow between $5,000 and $100,000, which is the most out of the personal loans recommended here. The fixed APR ranges from 5.49% - 14.24% if enrolled in autopay. You can choose a term of up to 7 years. Variable interest rates range from 5.21% - 11.67% APR. Although SoFi does not use FICO, you need to be "prime" or "super-prime" to qualify. That means you must be current on all of your obligations and must never have filed for bankruptcy. There is no origination fee or prepayment penalty associated with a personal loan from SoFi.
Some of the leading lenders for people with less than perfect credit include:
LendingClub - Minimum FICO of 600
This is a peer-to-peer platform, which means individual investors are contributing to your loan. You can borrow between $1,000 and $40,000 with LendingClub, and its APR ranges from 5.99% - 35.89%, depending on the type of loan grade you’re eligible for. Be aware there are origination fees (ranging from 1% - 6%) associated with this personal loan, but there are no prepayment penalties. You can borrow on terms up to 5 years. The minimum credit score needed is 600. LendingClub is not available in Iowa or West Virginia.
Prosper - Minimum FICO of 640
Prosper offers loans from $2,000 to $35,000, and APR ranges from 5.99% to 35.99%. It offers loans terms of either 36 or 60 months. Your APR is determined during the application process, and is based on a credit rating score created by Prosper. Your score is then shown with your loan listing to give potential lenders an idea of your creditworthiness. Origination fees range from 1% to 5% and are based on your Prosper score. In order to qualify, you must:
Prosper is a flexible alternative with a low-end APR that usually beats a credit card.
A Loan or a Credit Card to Consolidate Debt?
Personal loans can be an excellent way to consolidate your debt. Personal loans are best when you have a lot of debt or your credit score isn't perfect. However, if you have a smaller amount of debt and a great credit score, you can get rates as low as 0% with a balance transfer. If you do have a good credit score, you should apply for a 0% interest balance transfer credit card.
Wait: I Have Student Loan Debt
If you’re thinking about refinancing or consolidating your student loans, there are a couple of things to know.
First, what’s the difference between refinancing and consolidating?
- Private Loan Consolidation: This involves combining all your loans into one loan so you only owe one lender and have to make one simple payment.
- Federal Loan Consolidation (Direct Consolidation Loan): Only have Federal student loans? You can combine them through a Direct Consolidation Loan with the government. According to studentaid.ed.gov, “The fixed rate is based on the weighted average of the interest rates on the loans being consolidated.” This doesn’t save you much money, but your payments will be more manageable. For a complete list of Federal loans that can be consolidated, check here.
- Refinancing: This is when you apply to a completely new lender for new terms – you’ll have a new loan, and your new lender will pay off your old loan.
The difference isn’t all that big – when you consolidate private (or private and Federal) student loans, you’re essentially going through the refinancing process.
If you currently have Federal loans, you need to be aware refinancing or consolidating means giving up certain benefits that come with federal student loans.
That means income based repayment, deferment, forgiveness, and forbearance options disappear. A few of these benefits are forfeited even with the Direct Consolidation Loan. These benefits could get you through an otherwise rough time, so make sure refinancing makes sense beforehand.
If you do have federal student loans, and you’re thinking of refinancing or consolidating, first see if you’re eligible for deferment or forbearance. There’s no reason to go through the process of having your credit checked if you can lessen your student loan burden another way.
If you have private student loans, you can also check with your lender to see if it offers payment assistance. Many lenders are making improvements to their student loan refinance programs and including forbearance and deferment options.
Also, once you consolidate or refinance your student loans, there’s no going back. This applies to the Direct Consolidation Loan as well.
Shopping Around is a Must When Consolidating or Refinancing
The goal of refinancing or consolidating is to ultimately make your debt less of a burden on you. That means getting the best rates and terms offered. The easiest way to accomplish this is to shop around with different lenders. If you do so within a 45-day window, FICO will not punish you for shopping around. All of your student loan inquiries in the 45-day period will only count as one inquiry. Plus, there are many lenders out there who will give you rates with just a soft credit inquiry (though a hard inquiry is required to move forward with a loan). Always put yourself first, as you’re never obligated to sign for a loan you’re approved for.