Author: Kelechi Edeh
According to financial experts, approximately 8 out of 10 Americans are in some form of consumer debt. So, if you have a high credit card balance, a mortgage, and student loans, you are not alone.
If you’re in debt, you might be looking for ways to get your finances under control. Debt consolidation is one method for reducing your debt, streamlining your payments, and lowering your interest rates, allowing you to pay off your debt faster.
This article will cover debt consolidation loans, how they work, and which debt consolidation loans you should look into in December 2022.
What Are Debt Consolidation Loans?
Debt consolidation is when a borrower obtains a new loan with better terms (reduced monthly payments, lower interest rates, or both) and then uses it to pay off their existing debts. It combines several unsecured debts into a single fixed monthly payment. Consider a debt consolidation loan to help you pay off your credit card debt, car loan, or other personal loans.
How Does it Work?
A personal loan is generally required to consolidate a debt, which means replacing multiple loans with a single loan. A personal loan can be taken from a bank or another lender.
When you begin the application process for a personal loan, most lenders ask about the purpose of your loan, and personal loans for debt consolidation typically have a higher interest rate than other loan types.
When your lender approves your debt consolidation loan, you may be given the option of having your other debts paid off automatically or having you make payments on your own. After you have paid off your previous debt, you can begin making monthly payments on your new loan.
Top Debt Consolidation Loans
These are some of the best debt consolidation loans we believe you should consider, whether you want one with no fees, the best interest rates, bad credit, or the best for paying off credit card debt.
1. Marcus by Goldman Sachs
Marcus by Goldman Sachs provides personal loans ranging from $3,500 to $40,000. These loans are flexible, with terms ranging from three to six years, and they help debt consolidation borrowers by making direct payments to third-party creditors.
To qualify for Marcus’ loans, applicants must have a credit score of at least 740. While no income is required, applicants must have a source of income enough to pay for loan repayment.
Pro
- There are no fees.
- Pre-qualification with a soft credit check is an option.
- Rate decrease for autopay
Cons
- Co-signers or co-applicants are not permitted.
- After loan approval, funding can take up to four days.
- A minimum credit score of 740 is required.
2. Happy Money
Happy Money, formerly Payoff, is a lending platform that matches borrowers with fixed-rate debt consolidation loans. Borrowers in all states can apply for Happy Money loans, except for Nevada, Mississippi, Nebraska, and Massachusetts.
Happy Money loans range from $5,000 to $40,000, making it a versatile option for people looking to consolidate high credit card balances. Lending terms range from two to five years.
Even though Happy Money charges origination fees ranging from 0% to 5%, there are no annual or late fees. To qualify, applicants must also have a minimum credit score of 640.
Pros
- Quick funding
- Pre-qualification via soft credit check
- The competitive annual percentage rate
Cons
- It includes an origination fee.
- Repayment terms are limited.
- Borrowers cannot select an initial payment date.
- There is no rate discount.
3. SoFi
SoFi is a digital lending platform that provides fixed-rate personal loans to borrowers in all states except Mississippi. Loans range from $5,000 to $100,000, making it an excellent option if you have good credit and need to borrow a large sum of money.
SoFi repayment terms range from two to seven years, and while it allows borrowers to submit joint applications, co-signers are not allowed. SoFi offers low annual percentage rates (APR) to approved borrowers; to qualify, you must be a legal adult in your state, a US citizen, and employed.
Pros
- There are no fees.
- Option for a joint loan
- Large loan amounts with favorable terms
- Loan management mobile app
Cons
- Loan with a high minimum
- Borrowers are unable to specify an initial payment date.
- Does not provide direct debt consolidation payment to third-party creditors.
3. Upgrade
Upgrade provides mobile and online banking solutions to borrowers in every state except for West Virginia, Iowa, and Vermont. Your loan funds will arrive in your bank account in four business days, and you can lend between $1,000 and $50,000. Borrowers with a poor credit history should also Upgrade.
Pros
- Discount for multiple rates
- Low required minimum credit score
- Joint loan
- Long terms of repayment
Cons
- A high annual percentage rate (APR)
- There is an origination fee.
- Borrowers cannot select a payment date.
How to Apply for a Debit Consolidation Loan
The application process for debt consolidation loans varies depending on the lender, but here are some general steps to take when applying for a personal loan.
- Check your credit score with your creditor to determine your creditworthiness and eligibility.
- If your credit score is less than 610, you should consider ways to improve it before applying.
- Calculate your total debt to determine how much you need to borrow to consolidate your debt.
- Find the best interest rates and terms.
- Submit a formal application to the lender that best meets your needs, either online or in person.
The Bottom Line
If you want to reduce your debt and gain control of your finances, regardless of your credit score history, you may want to consider a debt consolidation loan. Before deciding on a debt consolidation loan, shop for a lender who offers the best terms and interest rates for your situation.
