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Debt consolidation is when you take out one loan and use it to pay off other debts that you have, leaving you with one monthly payment and interest rate. This can help you manage your debt more efficiently, and, in some cases, reduce the total amount of interest you'll pay if the new loan's APR is lower.
Generally, you'll need a personal loan for debt consolidation, which means replacing multiple loans with a single loan instead. Business Insider's personal finance experts chose the best personal loans for consolidating debt, and we highlight their features below.
Best for good to excellent credit: LightStream Personal Loan
Lightstream is a highly regarded lender for many loan types, and has been a top pick across Business Insider's coverage of the best personal loans and best auto loans. However, this lender only works with borrowers with good or better credit, with a minimum credit score requirement of 660.
LightStream offers consistently low personal loan interest rates, though its minimum interest rate for debt consolidation is higher than its typical personal loan's interest rates. However, this lender does not have any prepayment or origination fees. Same-day funding is available with LightStream.
Watch out for: Maximum loan amount limits. Only borrowers with excellent credit can borrow the $100,000 maximum, and anyone without excellent credit may not qualify for the full amount.
LightStream defines excellent credit as an account with five or more years of credit history, stable and sufficient income for debts, and a variety of credit history with little or no credit card debt. If you're looking for a debt consolidation loan, chances are you have a significant amount of debt, and may not fit these qualifications.
Additionally, LightStream doesn't have a way to pre-qualify online. You'll have to apply for the loan to find out exactly what your rates and terms could look like, which could make comparison shopping difficult.
Best for fast funding: Upgrade Personal Loan
Upgrade is great for fast cash because it allows you to get your money within one business day after your loan is reviewed and approved.
You're also able to get a loan for as little as $1,000, which is less than many of the other competitors on our list. It could be a good choice if you only have a small amount of debt you need to consolidate.
What to watch out for: Origination and late fees. Your origination fee will be late fee of up to $10 if you don't make a full payment within 15 days of your due date.
Best for high balances: SoFi® Personal Loan
A SoFi personal loan is the best option for anyone with a high balance, as this lender makes debt consolidation loans of $5,000 to $100,000. Debt consolidation loans from this lender are comparable in rates to those offered by LightStream, but SoFi® offers higher loan limits to all applicants, whereas LightStream only allows some borrowers to borrow up to $100,000. Similarly, SoFi doesn't have any application or prepayment fees as well as doesn't require an origination fee.
Watch out for: Stringent requirements. SoFi personal loans have a minimum credit score of 680. According to NerdWallet, the average income among borrowers is over $100,000.
Best for bad credit: Avant Personal Loan
Getting a loan with bad credit, whether to consolidate debt or for something else, can be expensive, or hard to qualify for. An Avant personal loan is the best bet for borrowers with poor credit, requiring a minimum credit score of 600.
Compared with other personal loan lenders offering debt consolidation loans for bad credit borrowers, Avant's terms are the most generous. While there is an administration fee, it could be lower than competitors' fees with a cap up to 4.75% in administration fees with an undisclosed late fee and returned payment fee. Avant also has the advantage of offering fast personal loan funding.
Watch out for: High rates with a low credit score. While Avant is accessible to borrowers with poor credit scores, approval might go hand in hand with high interest rates on your loan.
Best for fair credit: Payoff Loan™
In the fair credit range, it can be tough to qualify for a personal loan with reasonable interest rates — many lenders have a minimum of 660 or 680. However, a Happy Money Payoff Loan™ could be a good option for people with credit scores as low as 640. Interest rates are comparable to those offered by LightStream and SoFi, but this lender has less stringent requirements.
Compared with competitors Prosper and Best Egg, which both have the same 640 minimum credit score requirement, Payoff's interest rates are capped lower, and could have lower origination fees.
Watch out for: Origination fees. Payoff offers loans with a 0% to 5% origination fee. Competing lenders Prosper and Best Egg charge 1.00% to 9.99% and 0.99% and 9.99% origination fees, respectively. The better deal will depend on your credit score, income, and repayment term.
Best for loan options: Wells Fargo Personal Loan
Flexibility makes Wells Fargo personal loan a top contender for best personal loans for debt consolidation. Wells Fargo separates debt consolidation loans from personal loans, but the interest rates are the same.
Benefits include competitive interest rates and an autopay discount of 0.25% if payments are made from a Wells Fargo account. For unsecured personal loans, the most common type for debt consolidation, there are no origination or prepayment fees.
Wells Fargo can send your loan funds to your Wells Fargo bank account, or to a credit account outside of Wells Fargo to pay down your debts directly.
Watch out for: Wells Fargo's history with data security and compliance. The bank has faced several federal penalties for improper customer referrals to lending and insurance products, and security issues tied to creating fake accounts several years ago.
Debt Consolidation Loan Company Trustworthiness
The BBB measures businesses based on factors like their responsiveness to customer complaints, honesty in advertising, and transparency about business practices.
We've compared each institution's Better Business Bureau score to give you another piece of information to choose your lender. Whether you're considering a $5,000 loan or a $10,000 loan, a trustworthy lender can improve your loan experience.
Here is each company's score:
| Lender | BBB Grade |
| Wells Fargo Personal Loan | F |
| LightStream Personal Loan | A |
| Sofi Personal Loan | A+ |
| Payoff Personal Loan™ | A |
| Avant Personal Loan | A+ |
| Upgrade Personal Loan | A+ |
With the exception of Wells Fargo, our top picks are rated A or higher by the BBB. Keep in mind that a high BBB score does not guarantee a positive relationship with a lender, and that you should continue to do research and talk to others who have used the company to get the most complete information possible.
Wells Fargo is currently rated an F by the BBB due to government actions against the business and a failure to respond to 14 complaints. Most recently, the Consumer Financial Protection Bureau in December 2022 ordered Wells Fargo to return $2 billion to customers and pay a $1.7 billion penalty for legal violations involving auto loans, mortgages, and deposit accounts. The bank illegally charged fees and interest penalties on auto and mortgage loans. Additionally, it misapplied payments to those loans for many customers.
If you're uncomfortable with this history, you may want to use one of the other personal loan lenders on our list.
How to Choose a Debt Consolidation Loan
The main benefits of consolidating debt are streamlining your debts into a single account with one monthly payment and reducing the total amount of interest you'll owe.
When shopping for a debt consolidation loan, look for an APR that is lower than the average you're paying on the debt you want to consolidate. If you can't qualify for a lower rate, a debt consolidation loan might not be a good choice for you.
Also consider the loan amounts, associated fees and penalties, as well as a lender's credit score minimum and other eligibility requirements when choosing a debt consolidation loan.
How to Qualify for a Personal Loan for Debt Consolidation
Qualifying for a debt consolidation loan is the same as it is for most other kinds of personal loans.
Generally, lenders require a credit score in the mid-600s, although some will accept borrowers with lower scores. Remember, though, that with a lower credit score, you'll pay a higher interest rate.
In addition to checking your credit score, debt consolidation companies will also need proof of your employment and ability to repay in order to determine eligibility. They will also check your debt-to-income ratio to make sure you haven't borrowed more than you can feasibly pay back.
Most lenders will allow you to prequalify for a loan, which allows you to compare interest rates and terms without affecting your credit score.
How to Apply for a Debt Consolidation Loan
After you've gotten prequalified with several lenders, compare their offers and choose the one that best suits your needs. To complete the full loan application process you'll need a significant amount of documentation, including things like:
- Pay stubs/proof of income
- The last couple years of tax returns
- Documentation of 401(k)s and other financial accounts
- Photo ID
- Rent/mortgage history
- Proof of collateral, if you're pursuing a secured loan
Get these basics in order before applying for the loan, in order to speed up the process. You can apply for most loans by filling out a form online.
If you are approved, the lender will send you the final loan documents to sign off on. These include all the details such as the interest rate, the amount of time you have to pay it off, the amount you're borrowing, the monthly payments, and any fees. Make sure you fully understand all of it before signing for the loan.
Alternatives to Debt Consolidation Loans
If you're looking for a debt consolidation loan because your credit cards carry high APRs, it's worth your time to consider some alternatives.
One often underutilized strategy is to simply ask your credit card company for a lower rate. There's no guarantee that they'll agree. However, they may well do so, especially if you've been diligent about payments. You can also ask about upgrading your credit card, which may come with a lower APR and other perks.
You may also be able to get a lower rate by transferring your balances to a different credit card. Cards designed for this purpose often come with an introductory 0% APR period that can last anywhere from 12-18 months. Remember that you'll need to pay off your balance before the intro period ends to avoid being hit with high interest rates.
Tackling your debt head-on using strategies such as the avalanche and snowball methods is another alternative.
FAQs About Debt Consolidation Loans
Personal loans are the most common type of loan used for debt consolidation. Other options for consolidating debt include a home equity loan, a home equity line of credit (HELOC), and a balance transfer credit card.
When you take out a debt consolidation loan, the funds are used to pay down the debts you have with multiple lenders, leaving you with a single monthly payment to make. It does not erase your debt, and you might end up paying more over the long term even if you end up paying less each month on the consolidation loan.
Debt consolidation loans don't necessarily hurt your credit score. In fact, your credit will often be boosted in the long run if you consolidate your debt because it can reduce the amount you owe and lower monthly minimum payments, which all affect your credit score. With a debt consolidation loan, you can benefit from a lower interest rate.
Most personal loans allow a variety of uses. While most include credit card consolidation or debt consolidation, not all do. Read the fine print of any personal loan you're applying for, and make sure that debt consolidation is an acceptable use of the proceeds. All of the loans we considered had an option to use the loan for debt consolidation, if not a separate loan, which we included details for.
Why You Should Trust Us: How We Chose the Best Debt Consolidation Loans
To find the best personal loans for debt consolidation, we combed through the fine print and terms of about a dozen personal loans to find the ones that were best suited to help with consolidating debt. We considered four main features:
- APR range: For the most help with debt payoff, a personal loan for debt consolidation needs to have lower interest rates than the credit card or other debts you're consolidating. We looked for the loans that had the lowest rates possible for each credit range and purpose. The average credit card interest rate was 20.92% in the first quarter of 2022, so we focused on loans that had the potential to beat this.
- Appropriate loan amounts: We looked for personal loans that had the most variety in loan amounts. To benefit the most borrowers, we included personal loans with maximum limits over $10,000.
- Minimum credit score requirements: Where available, we considered the minimum credit score requirements for each company. We considered loans for excellent, fair, and poor credit, grouping loans into categories based on these credit score requirements.
- Fees: We considered fees like origination fees or administrative fees in our decisions, looking for loans with the fewest or lowest fees. None of the best loans listed have prepayment penalties.
- Nationwide availability: We only considered loans with availability in most or all 50 US states.
See our ratings methodology for personal loans »
How We Review Debt Consolidation Loans
We consulted loan and financial planning experts to inform these picks and give their insights into finding the best loans for your needs. You can read their advice at the bottom of this post.
- Andre Jean-Pierre, senior wealth advisor and managing director at Aces Advisors
- Forrest McCall, founder of Don't Work Another Day
- Fred Winchar, CEO and co-founder at MaxCash
- Ryan Wangman, former loans reporter at Business Insider
Generally, What Makes a Personal Loan Good or Not Good?
Andre Jean-Pierre:
"One of the most important factors to consider in a personal loan is the interest rate. Because personal loans are typically unsecured, they usually carry higher interest rates than secured lending options. However, if a person has a strong credit profile, a personal loan can carry a lower APR than other unsecured sources of financing such as credit cards."
Forrest McCall:
"One of the best ways to use a personal loan is to pay off other high-interest debts like credit card debts. Because you can often lock in lower rates than a revolving line of credit like a credit card it can be a smart decision for your finances and save you thousands in interest payments over time."
How Should a Borrower Decide if They Should Take Out a Personal Loan?
Fred Winchar:
"Whether or not to take a personal loan depends on if one can afford it. The purpose of the loan and the value that comes with it is of importance to note. In most cases, it is beneficial to use the loan to invest in a project that can bring extra income or savings."
Ryan Wangman:
"Borrowers should carefully consider alternatives to personal loans before taking one out. Personal loans can come with high interest rates, especially for borrowers with poor credit. If you can't fit those monthly payments into your budget, steer clear of the loan."
