Americans love their plastic money.
And it’s quite evident from our existing credit card debt.
As per the recent data, Americans have an outstanding credit card debt of over $1.04 trillion, with the revolving credit accounting for $466.2 billion and transactional balances as the rest.
The average American household has $6,194 in revolving credit balances, costing them over $1,000 in interest payments.
Imagine what you could do with these extra $1,000; build an emergency fund, contribute towards retirement, and achieve your financial goals.
The good news is that you can get rid of your expensive credit card debt through debt consolidation.
Let me quickly explain what debt consolidation is about.
You combine your existing loans (those with higher interest rates) and take a new loan (personal loan or home equity line of credit) to repay them.
While it may appear like a Catch 22, it actually works in your favor. Here is how:
- You save money on interest payments by paying off expensive debts and replacing it with a relatively cheaper loan.
- You gain more control over your financial life. Instead of managing multiple payments, you have to repay a single installment loan.
Studies indicate that Americans are increasingly using personal loans for debt consolidation, so we’re going to find out some of the best personal loans for debt consolidation.
Also, we’ll discuss why you need a debt repayment strategy before considering debt consolidation.
Before we dig into the best personal loans for debt consolidation, I’d like to touch on the benefits of using a personal loan over other financing options.
- You can avail a personal loan even with a lower credit score.
- Personal loans can be processed in relatively shorter periods.
- The APRs are affordable when compared with credit cards. (Please remember that credit cards with 0% introductory rates witness a sharp spike in rates post the promotional period.)
With that being said, let’s take a look at some of the best personal loans.
Best for no-fee personal loans and higher credit score.
SoFi has gained popularity because of its student loan refinancing solutions, but the lender offers additional financial products, including a personal loan. SoFi’s personal loans rank higher because of its no-fee structure and affordable interest rates.
- SoFi makes it to our list because of its no-fee policies. The lender doesn’t charge origination fees, late fees, or prepayment charges for personal loans.
- SoFi offers flexible loan terms of two to seven years.
- What helps SoFi stand out is its unemployment protection, under which the lender pauses loan repayments in case you lose your job.
You can borrow anywhere between $5,000 and $100,000, although the borrowing limits vary depending on your state. The APR ranges between 5.99% and 18.82% with the AutoPay option.
SoFi has a high credit score requirement in comparison with other lenders. You’ll need a score of at least 680 to qualify for a loan. Also, the best APRs are available for borrowers with excellent credit scores.
- Higher credit score requirements
- Need for a stable salary and good credit history
- Borrowing limitations in certain states
- Long fund disbursement period
You can find out more about SoFi Personal Loan here.
2. Best Egg.
Best for quick loan processing and additional loan borrowing option.
If you have a good credit score, an annual income of $100,000 or more, and need quick fund processing, Best Egg is one of the options to start with. The lender claims to process the funds as soon as the next business day.
- There are no prepayment penalties with Best Egg, which means you can repay the loan as soon as you have funds.
- Best Egg deposits nearly 50% of the funds within a single business day.
- You can take an extra loan in addition to your existing loan with Best Egg as long as your net borrowed amount stays under $50,000.
You can borrow anywhere between $3,000 and $35,000 at an APR of 5.99% to 29.99%. The lender allows some customers to borrow up to $50,000 depending on several factors, such as credit score, income, and credit history.
Anyone with a credit score of 640 or higher can apply for a personal loan, but the best rates are available to people with a credit score of 700 or higher and annual income exceeding $100,000.
- You need an income of $100,000 or more, along with a credit score of 700+, to qualify for the lowest rates.
- Best Egg charges an origination fee of 0.99% to 5.99%, which could be easily avoided with other lenders.
- There is a late fee of $15 (for a delay of 3 days or more), processing fee of $7 (if you don’t have autopay), and return fees of $15.
Learn more about Best Egg here.
Best for multiple lending options (loan marketplace).
LendingTree is a marketplace for different types of loans. It acts as a peer-to-peer lending medium, connecting borrowers with different lenders. LendingTree might serve as a comfortable option to find quotes from different lenders without having to speak with multiple firms.
- LendingTree provides quotes from multiple lenders simultaneously, helping you find the right option quickly.
- You can find a lender that suits your requirements by adjusting different filters. It doesn’t matter whether you have a high credit score or a less-than-optimal score. You’ll find a lender that has the right loan for you.
As shown on its website, you can find personal loans of up to $50,000 on LendingTree. The APR will vary depending on various factors, such as your credit score, debt-to-income ratio, lending amount, and credit history.
Since LendingTree is a loan marketplace, there are no set credit score requirements. You can find personal loans for Excellent, Good, Fair, and Bad credit scores.
LendingTree isn’t a lender, so there aren’t any limitations at the moment.
If you’re interested in finding out more about LendingTree, check here.
Best for no-fee personal loans with extra loan features.
Marcus By Goldman Sachs is another venue for personal loans that differentiates itself with a no-fee structure. The online arm of Goldman Sachs provides personal loans of up to $40,000, with an APR of 6.99% to 19.99%.
- Marcus offers a zero-fee personal loan, which means you don’t have to pay an origination fee, late fee, or prepayment fee on your loan.
- For borrowers who make 12 continuous, on-time monthly payments, Marcus allows deferral of a single monthly payment. The lender simply adds a month to your loan term without charging any interest for the deferred month.
- Marcus has an interactive online tool that allows qualified borrowers to pick up the repayment amount and loan term that they’re comfortable with. The lender then provides a personal loan quote accordingly.
You can borrow up to $40,000 at an APR of 6.99% to 19.99%. Borrowers can choose a payment term of 36 to 72 months.
You’ll need a credit score of 660 or higher to qualify for favorable terms. Marcus offers the best terms to individuals with high credit scores and positive credit history.
- Marcus is suitable for borrowers seeking low to moderate loan amounts.
- The best lending terms are available for borrowers with higher credit scores.
- Marcus doesn’t allow adding a co-signer for a personal loan.
If you have any more questions about Marcus, visit the official website.
Best for affordable APRs, quick funding, and high credit scores.
If you have a good credit score, a long credit history, and want a personal loan with no-fees, LightStream offers a good option. The lender takes pride in its customer service and rate competency. It offers a rate-matching guarantee for qualified borrowers, with an additional 0.10% discount in APR, and if you are not satisfied with LightStream’s customer service, you will receive $100 from the lender.
- The lowest rates start at 3.49% and go up to 19.99%.
- LightStream doesn’t charge any fees, including the origination fees, prepayment fees, and late payment fees.
- LightStream matches the best APR for qualified borrowers, with 0.10% lower APR. Also, if you are not happy with the entire loan process, the lender will deposit $100 in your account.
- LightStream provides same-day funding if your application is approved before 2:30 p.m EST.
LightStream offers personal loans of $5,000 to $100,000. The APR ranges between 3.49% and 19.99% (with autopay discount). You can choose a loan term of 24 months to 144 months.
LightStream targets prime borrowers, which means you should have a credit score of 660 or higher. Also, LightStream prefers borrowers with a long credit history.
- The minimum borrowing amount of $5,000 is high in comparison with other lenders.
- LightStream conducts a hard credit inquiry, which means your credit score may drop by a couple of points.
- There is no option for pre-qualification with this loan.
If you’re ready to find out more about LightStream, visit here.
Best for subprime borrowers.
LendingClub is the firm responsible for popularizing the idea of peer-to-peer lending. You can apply for a personal loan and get the loan funded from individual investors or financing institutions. LendingClub offers a debt consolidation program under which it clears your loan balance with up to 12 different creditors. You must know that LendingClub is a P2P lending marketplace, which means it only facilitates the loan instead of funding it.
- LendingClub provides funding to people with a diverse credit score profile. You need a credit score of 600 or more to qualify for a loan.
- There are no prepayment penalties for early repayments.
- You can choose a long financing term, i.e., 5 years, with LendingClub.
- You can add a co-borrower to your application for approval.
You can take out personal loans of up to $40,000 through LendingClub. The APR varies between 10.68% and 35.89%. You can choose between a 3-year and a 5-year loan term.
LendingClub is ideal for borrowers with a credit score of 700 or higher, but the minimum credit score requirements are set at 600. Also, your debt-to-income ratio should be under 40% or 35% for joint applications. You’ll have better chances of approval with a credit history of 3 years or more.
- LendingClub charges an origination fee of 2 to 6%, which is deducted upfront from the net approved amount.
- LendingClub may take up to a week to fund your loan as it provides funds through individual investors.
- You will pay a late payment fee of $15 or 5% of the unpaid installment, whichever is higher.
For those interested in finding out more about LendingClub, kindly check here.
Best for individuals seeking in-person service and flexible lending criteria.
For borrowers with a less-than-optimal credit score, OneMain Financial is a good option. The financial institution differentiates itself from other lenders by taking into account multiple factors for qualification in addition to the credit score. Also, OneMain Financial has over 1,600 branches across 44 states, allowing them to offer a personal experience to their customers.
- OneMain Financial doesn’t have strict credit score requirements, which is good for individuals with lower scores.
- If you are more comfortable with an in-person process, OneMain Financial is the right place. You can visit any of its 1,600+ branches.
- OneMain Financial offers multiple payment options, including online payments, branch payments, app-based payments, and through its free PayNearMe service.
- OneMain Financial has a flexible loan term. You can choose a tenure of 24 to 60 months (24, 36, 48, or 60).
- There are no prepayment charges for your personal loan.
OneMain Financial offers personal loans of $1,500 to $20,000 at the APR of 18.00% to 35.99%.
There are no specific credit score requirements for OneMain Financial, which means people with lower credit can also qualify for a loan.
- OneMain Financial isn’t suitable for individuals with a Good or Excellent credit profile because of its high initial rates. You can find better rates somewhere else.
- You have to visit the OneMain Financial branch to conclude the application process.
- OneMain Financial has an origination fee of 1% to 10% for a personal loan, which is deducted from the net loan amount. Also, the lender charges a late fee, which may vary depending on your state.
- You cannot use your personal loan for college tuition or business expenses.
You can learn more about OneMain Financial by visiting this page.
Best for individuals with low credit score seeking quick financing.
Avant is another lender on our list that targets customers with less-than-perfect credit scores. The firm offers competitive APRs in comparison with other lenders serving borrowers with low credit scores. Avant offers refinancing options to some borrowers after they’ve made successful payments for at least six months on their existing loan.
- Avant has a minimum credit score requirement of 580, which means people with lower credit scores can also get personal loans from the lender.
- There are no prepayment charges if you pay off the loan early.
- You can get access to your funds as soon as the next business day.
- Anyone with a gross annual income of $20,000 or higher can qualify for a personal loan.
- Avant provides refinancing options to borrowers who have made timely payments of at least six months on their existing loan.
You can take a personal loan of $2,000 to $35,000, with a payment term of 2 to 5 years and an APR of 9.95% to 35.99%.
Avant targets borrowers with lower credit scores. Anyone with a credit score of 580 or above can qualify for a personal loan.
- Avant charges administration fees of 4.75%, which is deducted from the approved borrowing amount.
- There is a late payment fee of $25, along with an unsuccessful payment charge of $15.
- Avant doesn’t allow any co-signers for personal loans.
Here is some additional information about Avant.
Best for fresh grads and younger borrowers with limited credit history.
Upstart is a lending company founded by “ex-Googlers” with the primary intent of lending loans to borrowers with a limited credit history (recent grads or young adults). The lender has lower credit score requirements in comparison to other companies on our list. It uses AI and machine learning for loan qualification and processing.
- Upstart caters to individuals with limited credit history and lower credit scores (620). It takes into account additional factors, such as education, work history, employment, and even test scores for qualification.
- Upstart can disburse funds as soon as one business day. You can check your applicable APR within 5 minutes.
- There are no prepayment charges for paying off your loan early.
You can apply for a personal loan of $5,000 to $30,000, with an APR of 6.27% to 35.99%. You can choose between a 3-year and a 5-year term.
You’ll need a credit score of 620 or higher to qualify for a personal loan from Upstart. The lender may approve borrowers with lower credit scores, but the APRs are likely to spike for such borrowers.
- Upstart has an origination fee of up to 8%, which is the highest on our list. A borrower with a good credit score will be better off with other lenders.
- Any delay in payments is subject to late fees of $15 or 5% of the unpaid amount. There are other charges, including a return check fee of $15 and $10 for a paper copy.
- There are only two loan terms to choose from, including 36 months and 60 months.
Check here to learn about the additional features of Upstart’s personal loan.
10. PenFed Credit Union.
Best flexible borrowing amount and payment term for members.
PenFed Credit Union is the only credit union on our list and for all the right reasons. It offers affordable personal loans to its members. Individuals with lower credit scores can also qualify for a loan. PenFed Credit Union offers loans as low as $500 with a one year term.
- PenFed Credit follows a low-fee structure, which means you won’t have to pay any origination charges, prepayment fees, or any other hidden costs.
- PenFed provides loans with flexible payment terms of 12 months to 60 months.
- You can apply with a co-signer to improve your chances of approval. PenFed doesn’t provide any specific credit score requirements, but general research indicates that you need a credit score of 600 or higher to qualify.
- PenFed releases funds as early as 24 hours.
PenFed offers personal loans of $500 to $20,000. Its APR stays in the range of 6.49 to 17.99%. You can choose a payment term based on your borrowing amount. PenFed Credit Union offers flexible payment terms of 12 months to 60 months.
You’ll need a credit score of 600 or above to qualify for good rates.
- You’ll have to become a member of the PenFed Credit Union to get final approval, which could delay the process slightly.
- There is a returned check fee of $30 and a late payment fee of 20% of the monthly interest payment.
If you have any more doubts about PenFed Credit Union, check the official website here.
Now that we have listed some of the best personal loans for debt consolidation, here is something rather important you should understand before consolidating your debts.
Debt consolidation only restructures your debt, not your spending habits or money management skills.
It means any money issues you had in the past must be kept in check for this strategy to work. Our research revealed that a lot of people were worse off after consolidating debt because of financial indiscipline. Some of the common problems people face after debt consolidation are:
- Accumulating new debt before paying existing loans
- Falling behind on payments
- Losing motivation or willpower to repay the entire loan.
Any of these financial mistakes can ruin your chances of being debt-free. The only way you can steer clear of new debt is through a debt management strategy.
Here is how a simple debt management strategy works.
- Take professional advice before debt consolidation. Find out which debt consolidation method will work for you. Understand your financing options and their potential pitfalls.
- Analyze your spending habits and adjust them for debt consolidation to work. The trick here is to work on unnecessary spending. Start by identifying these expenses. Find out the amount of money you can save by letting go of these habits. Most financial experts recommend creating a budget while going through financial recovery.
- Create an emergency fund before consolidating debt. Ideally, you should have up to six months of living expenses in emergency savings, nine months if you’re the only earning member of your family. We recommend creating an emergency fund before consolidating your debt. It’ll make sure that you have a financial reserve to lean on during your debt transformation journey.
- Go credit-free until your loans are paid off. You can enroll in a debt management program that keeps you on track through regular reminders. In some cases, it might work to involve your partner or a close friend to keep a check on your spending habits.
Debt consolidation is an excellent way to gain financial control of your life. You have an opportunity to eliminate your existing debt while saving money on interest payments.
Here is what we recommend for debt consolidation to work:
- Have a financial strategy in place before you consolidate your debt.
- Focus on building financial discipline for long-term results.
- Always have an emergency reserve to fall back on.
Debt is an essential part of life. You’ll need credit for most of your major purchases. The trick is to use debt to your advantage instead of being taken advantage of.