Itâs estimated that 80% of Americans are in debt to some degree, with many US citizens caught in a never-ending spiral of debt. Credit cards, medical bills, mortgage paymentsâ¦ itâs easy to lose track of all that money you owe.
But for some people, debt consolidation loans are the answer.
With low interest rates, flexible loan amounts, and decent repayment terms, debt consolidation companies are a great way to move multiple separate debts into one easy-to-track personal loan payment.
Here we take a look at the best debt consolidation loans and answer your FAQs to see whether consolidating debt is right for you.
The Best Debt Consolidation Companies in 2021
- Refinance your mortgage â Quicken Loans
- Great customer service â Rocket Loans
- Useful for comparing different APR rates â Lending Tree
- Good for fair credit scores â Payoff Loans
- Often has low-interest rates â LightStream
- A trusted name â Marcus by Goldman Sachs
- Easy-to-use website â Liberty Lending Service
1. Quicken Loans â Best For Consolidating Debt Into Mortgages
- High-interest debt becomes low-interest mortgage interest
- 15-year & 30-year fixed-rate mortgages
- 3-4% interest rates
Quicken Loans is a unique debt consolidation service. Instead of offering various loan amounts at different interest rates, it allows you to consolidate credit card debt into your mortgage payments. Itâs one of the best refinance mortgage lenders around.
Most credit cards charge around 15% APR, while mortgage interest is roughly 3-4%.
By consolidating high-interest credit card debt into a new low-interest mortgage, you could save a significant amount of money in the long term. The interest on mortgage payments is also usually tax deductible â this is not the case for that regular credit card debt.
There are many plans available depending on your property and the loan terms you require, though their 15-year fixed-rate loan and 30-year fixed-rate loan are popular options. Just make sure that you can fulfill the repayment terms before putting your house on the table.
2. Rocket Loans â Best For When You Need Cash Fast
- Loan amount: $2,000 to $45,000
- APR: 7.16% to 29.99%
- Min. credit score: 620
- BBB Rating: A+
Rocket Loans offers various loan amounts for consolidation, anywhere from $2,000 to $45,000, according to your credit profile. The min credit score you need to apply is 620, which a lot of Americans luckily fit into.
Citizens in all 50 US states can apply.
Rocket Loans can provide same-day funding for loans of up to $25,000, and there is an online application process that is much simpler than many debt settlement companies. However, their APR is on the higher side, so keep that in mind when applying.
3. LendingTree â Best For Checking Multiple Lenders
- Compare different lenders
- Sort by lowest APR
- Sort by lowest loan payment
If youâre looking for the best loans for debt consolidation, look no further than LendingTree. This website allows you to compare different lenders to find the best lender for your needs.
In other words, you donât need to go to each lender and request a quote separately â LendingTree does it all for you.
With a few clicks here and there, LendingTree lets you compare lenders according to their loan terms, APR, FICO requirements, and more. You can even sort the loans by âlowest APRâ or âlowest loan payment,â finding a debt consolidation plan that works best for your budget.
4. Payoff Loans â Best For Fair Credit
- Loan amount: $5,000 to $40,000
- APR: 5.99% to 24.99%
- Minimum credit score: 640
- BBB Rating: A+
Payoff Loans are a good choice if youâve got fair credit and you think you can afford the monthly payments outlined in the loan terms. Accredited by the Better Business Bureau with an A+ rating, Payoff Loans are known for their stellar customer service and great offers.
The good thing about this company is that they present you with alternative options before reeling you in with a debt consolidation loan â it doesnât feel like theyâre trying to trap you.
They talk about balance transfer, home equity, and personal loans as alternatives to consolidation as well before even making you an offer. I personally like when online lenders for personal loans donât make you feel trapped.
5. LightStream â Best For Low-Interest Rates
- Loan amount -$5,000 â $100,000
- APR â 4.49% â 20.49%
- Min credit score â 660
- BBB rating â A+ (parent company)
LightStream offers very high loan amounts all the way up to $100,000, so it could be the best option if youâve got a serious amount of credit card debt that needs consolidating.
LightStream also offers competitive APR and monthly payment terms, so itâs great for those with excellent credit. You can also get term lengths of 2 to 7 years, giving you lots of repayment flexibility.
The parent company of LightStream, Truist, has an A+ BBB rating. This is a good sign that the company isnât shady, even if itâs not rated on the LightStream division itself. The credit requirement of 660 is a little higher than most, but that makes sense when youâre offering up to $100k.
6. Marcus By Goldman Sachs â Best For Good Credit Scores
- Loan amount: $3,500 â $40,000
- APR: 6.99% â 19.99%
- Min. credit score: 660
- BBB Rating: A+
If you want debt consolidation loan funds supplied by a trusted name, it doesnât get much more recognizable than Marcus by Goldman Sachs. Offering competitive APR and loan amounts up to $40,000, itâs easy to see why many people choose this lenderâs loan offers above the rest.
There are no origination fees or late fees, and you can get loan repayment term lengths anywhere from 3 years to 6 years. However, loan funds can take up to 4 business days to appear in your account after a deal is made, so Marcus By Goldman Sachs isnât ideal if you need cash fast.
7. Liberty Lending Service â Best For Quick Approval
- Loan amount â $2,000 to $100,000
- APR â 7.99% to 29.99%
- Minimum credit score â not specified
Liberty Lending Service offers personal loans for anywhere up to $100,000, so it may be good for those who have a lot of credit card debt or medical bills to pay off. Their min credit requirement isnât specified, so it works on a case-by-case basis.
You may be offered fixed or variable rate loans from 7.99% to 29.99%.
Repayment term lengths go from 2 to 5 years, so there is some flexibility but not as much as some other lenders.
However, LLS guarantees fast approval in 24 hours or less (usually), so it can be easy to agree on those loan terms and get the cash rolling in quickly to stop your mountain of debts from growing further.
Best Debt Consolidation Loans FAQ
What Is a Debt Consolidation Loan?
A debt consolidation loan is a type of personal loan that aggregates multiple unsecured debts into one, easy-to-manage payment. The debt consolidation company essentially âpays offâ your debts and transfers them to a ânew debtâ with them, so you only have one payment to keep track of.
Debt consolidation only covers unsecured debt, meaning debts that arenât tied to a physical object (i.e., house or car) and that arenât backed by another person financially.
You can use debt consolidation for things such as:
- Credit card debt
- Medical bills & expenses
- Personal loans
- Payday loans
However, you cannot use debt consolidation for things such as your mortgage or vehicle payments, as these are considered to be âsecured loans.â
Consolidating your debts is a great way for some people to manage their monthly payments and begin to improve their financial situation. However, a debt consolidation loan may cause you to pay more interest over the long term, so itâs crucial to check the fine print carefully.
Alternative Methods for Paying off Debt
While consolidating credit card debt works for many people, there are alternative methods for improving your finances that may work for you, depending on your situation.
- The Snowball Method: this involves paying off your smallest balances first, so you can gradually reduce the number of debts youâre trying to resolve.
- The Avalanche Method: this involves paying off your debts with the highest interest rates first, aiming to save you the most money in the short-term.
- Negotiate With Your Creditors: many borrowers donât think to try, but you can negotiate with creditors and lending partners on the phone, in-person, or through emailâ¦ call up your credit card companies separately and negotiate a realistic way to pay off the money slowly.
Loans for debt consolidation are just one tool on the financial road to recovery â make sure you explore all options before making a decision.
Which Bank Is Best for Consolidation Loans?
There is no single âbest company for consolidation loansâ because the offers vary wildly depending on your credit rating, how much you need to borrow, and various other factors that determine whether or not you qualify for a debt consolidation loan at all.
When searching for the best personal loans for debt consolidation, you need to look at the following factors and do the calculations to figure out whether a debt consolidation loan will be cheaper for you to pay off in the long run.
What Is Your Credit Score? (Fico)
Your credit score is an approximate rating of how well you use credit cards and other types of personal loans. If you pay off your debts regularly and on-time without missing payments, then youâre likely to have a good credit score.
On the other hand, if you miss payments, max out credit cards, and donât spend responsibly, youâre likely to have a poor credit score, sometimes called a credit rating or FICO score.
Credit scores are broken down into the following numbers:
- 300-579 = Poor
- 580-669 = Fair
- 670-739 = Good
- 740-799 = Very Good
- 800-850 = Exceptional
If youâve got poor or fair credit, then youâre unlikely to be offered a great debt consolidation loan with a good interest rate. This is because your credit history suggests that youâre bad at paying off debt, so you present a lot of risk to lenders.
You might not even get an offer at all and be forced to take steps to fix your credit first.
On the other hand, those with good credit, very good credit, and excellent credit have shown that they are responsible when it comes to credit card spending and paying back their debts.
These âless riskyâ people are likely to be offered good credit card rates, interest rates, and debt consolidation loans.
Which Interest Rates Can You Afford?
The better your credit score, the better the interest rate is likely to be. A lower interest rate is usually offered to those with good credit who are likely to pay off their new loan responsibly. Some lenders may also offer a low-interest rate as part of a special offer to new customers.
Interest payments may seem small, but they can rack up over time.
âCompound interestâ is when interest payments start to grow your debt exponentially, like a snowball getting larger and larger as it rolls down a snowy hill. This can happen easily if you just make the minimum payments every month and nothing else.
Make sure that your interest rate is affordable!
If youâve got three credit cards youâre paying off, all of which have a 7.5% interest rateâ¦ then it wouldnât make sense to switch to a debt consolidation loan with a 12.5% interest rate.
While the single payment is easier to manage, youâre paying 5% more in interest as the months go by.
What Is Your Loan Amount?
The amount you want to borrow will largely dictate where you can go for your debt consolidation loan. If youâre only looking to borrow $2,000, youâre likely to get a lot of offers from different lenders because $2,000 is a small amount of money to a lender â itâs not risky to them.
However, if you want to borrow $50,000 for a debt consolidation loan, then youâll have a much harder time finding a lender to grant you that personal loan. This is because $50,000 is a much higher loan amount and is, therefore, more âriskyâ to the company.
Consider your loan amount carefully. Unsecured personal loans are essentially gambling for a lender. Because these unsecured personal loans arenât secured by a physical thing like a house or a car, the lender just has to rely on your credit history to guess whether or not you can pay them back in full.
The average person is more likely to pay back a $2,000 unsecured loan than a $50,000 equivalent.
Read the Terms & Conditions Carefully
Debt consolidation loans may seem like a âget out of jail freeâ card, but itâs not always that simple. If youâve got a decent credit score, you may be offered a lower interest rate than those of your separate debts.
However, many companies use âintroductory periodsâ for their APR rates.
For example, you might see that a company offers you a low 7% APR for 12 months, but then after that, it shoots up from 7% to 16%. If you havenât paid off the balance within 12 months, youâre suddenly going to have monthly payments that get more and more expensive.
Donât be caught out by introductory offers â always read the fine print!
Also, youâll often find that debt consolidation loans come with a one-off âloan origination fee.â This origination fee is charged to you for setting up the debt consolidation loan, and it usually costs anywhere from 1% â 8% of the loan amount.
Keep an eye out for that origination fee in the fine print!
Does a Debt Consolidation Loan Affect Your Credit Score?
Yes, a debt consolidation loan can negatively affect your credit score and cause it to lose points temporarily, but the effects will just be temporary so long as you pay back your new loan responsibly.
These personal loans require a âhard inquiryâ on your credit history, as opposed to the âsoft credit checkâ you sometimes get when a company runs a background check on you.
As the names imply, a hard inquiry hurts your credit score, but a soft credit check doesnât.
Debt consolidation loans work well to improve your score if you use them properly. However, if you apply for debt consolidation and also miss the payments on that, your credit rating will not fare well.
The Bottom Line: Which Bank Is Best For Consolidation Loans?
If youâve got multiple high-interest debts you need to stop, and you can afford to put them into a low-interest mortgage scheme, then Quicken Loans could be a great solution for you, with their fixed 15-year and 30-year mortgages turning your debts into manageable low monthly payments.
However, if you prefer not to put your house on the table, then weâd recommend Rocket Loans as the best company for consolidating debt with. They only require a 620 FICO score, and you can get loan funding on the same day as your application, so itâs perfect for when you need funds in a hurry!
Whichever service you choose, we hope you find the perfect lender for your consolidation needs.
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