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Hear from our editors: 5 best debt consolidation loans of 2023
Updated January 4, 2022
This date may not reflect recent changes in individual terms.
Editorial note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.
Written by: Jennifer Brozic
If you’ve got high-interest debt from credit cards, medical bills or payday loans, a debt consolidation loan may help you lower your monthly payments and create a plan to eliminate debt.
Finding the best debt consolidation loan for your situation can help you make that goal a reality. We’ve rounded up our picks for the best debt consolidation loans, so keep reading to see which loan might be the best option for you.
- Best for no fees and direct payments: Marcus
- Best for multiple repayment terms: Discover
- Best for credit card debt consolidation: Payoff
- Best peer-to-peer lender for debt consolidation: LendingClub
- Best for low interest rate: LightStream
- Best for those building credit: Avant
- What you should know about debt consolidation loans
Best Personal Loan for no fees and direct payments: Marcus
Why Marcus stands out: A loan from Marcus is backed by its parent company, investment bank Goldman Sachs, and it comes with no application, origination, prepayment or late fees. Plus, Marcus will send direct payments to up to 10 of your creditors, making it easier to pay off multiple debts at once and avoid the temptation of using your loan funds for something other than paying off debt.
- Good credit required — You’ll need good credit to qualify for a Marcus loan — more than 90% of people who borrow money from Marcus have FICO® scores of 660 or higher, according to the Goldman Sachs latest annual report.
- Competitive interest rates — Marcus offers competitive interest rates, but you’ll typically need excellent credit to qualify for the lowest rates. And interest rates are typically higher for longer-term loans.
- On-time payment rewards — After you make 12 consecutive monthly payments in full and on time, Marcus offers an on-time payment reward that allows you to defer a payment without paying additional interest on the deferred amount.
Read our Marcus personal loan review to learn more.
Why Discover stands out: With loan terms ranging from 36 months to 84 months, Discover can help you consolidate and pay down debt within a time frame that fits your lifestyle and budget.
- Direct payments for debt consolidation — Discover provides direct payments to your creditors.
- Competitive interest rates — Discover offers competitive interest rates on its personal loans, making it a good choice to consider for consolidating high-interest debt if you can get a lower interest rate than what you’re paying on your current debts.
- Minimum income requirement — The lender notes that you’ll likely need a minimum household income of $25,000 to qualify for a Discover loan.
- Money-back guarantee — Discover offers a 30-day money-back guarantee. If you decide you no longer want or need the loan, you can return the funds for any reason within 30 days and you won’t be charged interest. But Discover warns that it can’t recover money that’s been paid directly to creditors, so you’d need to reimburse Discover for any money it already distributed to pay off your debts.
- Late fee — Discover doesn’t charge origination or prepayment fees, but it may charge a late payment fee.
Read our Discover personal loan review loan to learn more.
Why Payoff stands out: Payoff’s personal loan is designed specifically for people who want to eliminate or reduce high-interest credit card balances. The company provides one-on-one support, including welcome calls and first-year quarterly check-ins, to help members as they work to get their finances back on track.
- Potentially lower rates than average credit card — Interest rates for Payoff loans start well below the August 2021 average credit card APR of 14.54%, as reported by the Federal Reserve. Paying a lower rate may help minimize interest charges while you pay off debt. But Payoff APRs can be higher, so there’s no guarantee that you’ll get a lower rate than what you were paying on your credit cards.
- No direct debt payments — Payoff doesn’t offer direct payments to creditors. So if you get a loan from the company, you’ll need to pay off each of your creditors on your own.
- Credit score provided — Payoff provides your FICO® score for free each month, so you can see the impact paying down your debt has on your credit.
- Minimum qualifications — The lender notes on its website that you’ll need to have a minimum FICO® score of 600 and no current delinquent credit accounts to qualify for a Payoff loan.
Read our Payoff personal loan review to learn more.
Why LightStream stands out: LightStream, the online-lending division of Truist, offers competitive interest rates for debt consolidation loans when you enroll in autopay. Plus, LightStream says it will beat competitor interest rates under certain circumstances.
- Good credit required — LightStream notes on its website that you’ll need good or excellent credit to qualify for a loan.
- Large loan amounts available — LightStream offers loan amounts ranging from $5,000 to $100,000 and repayment terms of 24 months to 84 months.
- Potentially fast funding — With LightStream’s quick funding process, you may receive your loan funds in your bank account on the same business day you apply. The exact timing will depend on your bank.
Read our LightStream personal loan review to learn more.
Why Avant stands out: Avant is an online lender that considers people who don’t have perfect credit. In fact, Avant says on its website that most of its customers have credit scores between 600 and 700.
- Check your potential rate — Avant lets you check your estimated rate and loan term with no effect on your credit scores, so you can compare its offer to loan offers you receive from other debt consolidation lenders.
- Online application process — The loan application can be completed online, and the lender says you may receive your loan funds as soon as the next business day.
- Higher interest rates — Although Avant considers people with imperfect credit histories, interest rates on Avant loans can be high compared to other lenders.
- Fees that can add up — Avant charges fees for late payments and insufficient funds as well as an administration fee of up to 4.75% on its loans.
Read our Avant personal loan review to learn more.
What you should know about debt consolidation loans
A debt consolidation loan can provide debt relief by simplifying your finances and combining multiple high-interest debts into a single payment each month — ideally with a lower interest rate. The funds from the new loan are used to pay off your existing debts, and then you repay the loan according to its terms.
Depending on your credit, you may be able to qualify for a lower interest rate than what you’re paying on your current debts. If you can’t qualify for a lower rate, you may want to consider another way to pay down your debt, such as a balance transfer credit card.
To decide whether a debt consolidation loan makes financial sense for you, take advantage of online calculators that allow you to compare the amount of interest and fees you’d pay on a new loan versus what you’re paying on your accounts today.
Lower monthly payments
Some debt consolidation loans provide lower monthly payments by extending your loan term, but you’ll likely pay more in interest with a longer term. You may decide that taking out a loan to lower your monthly debt payments is worth it even if it means paying more in interest over the life of the loan. Just be sure to weigh the pros and cons before you decide.
Remember, consolidating your debt into a single loan probably won’t improve your financial health if you continue to rack up additional debt. Before taking out a loan, it’s a good idea to look at how your expenses stack up against your income. You may discover you need to make some changes to your spending habits so that you can keep your finances on track.
Questions about personal loans††
Here are some common questions from our members.
If you qualify, you may be able to combine some or all of your unsecured debt into a single debt consolidation loan. With this type of loan, you’ll receive funds to pay off your other debt — such as personal loans, credit cards or student loans. Once you do that, you’ll make just one payment every month to repay your debt consolidation loan. Another potential benefit: You may be able to secure a lower interest rate, which could result in a monthly payment that’s lower than what you were previously paying.
A debt consolidation loan is a type of unsecured personal loan, meaning it’s not secured by collateral, such as a house or car. An unsecured personal loan generally has a fixed interest rate and is repaid in installments over a set period of time. Debt consolidation loans are available from a range of lenders, including banks, credit unions and other installment loan lenders.
A debt consolidation loan could temporarily lower your credit scores in a few ways. First, when you apply for a loan, lenders will perform a hard inquiry to check your credit. A hard inquiry can cause a slight drop — typically between three and 10 points — in your credit scores. If you’re shopping around for a debt consolidation loan and applying with multiple lenders, be sure to submit your applications within a 14-day period to help minimize the impact on your credit scores. Some credit-scoring models consider multiple inquiries within a two-week timeframe as just one inquiry.
Second, closing any accounts you pay off with the debt consolidation loan could also negatively affect your scores. This is because credit-scoring models consider the length of the accounts on your credit reports. Lastly, if you’ve recently applied for and taken out other types of loans or credit, your credit scores could take a hit. That’s because several new accounts within a short time can factor negatively into credit-scoring models.
But keep in mind that a debt consolidation loan could also help improve your credit in the long term if you make consistent on-time payments. Your payment history is typically a significant factor in calculating your credit scores.
Before deciding to consolidate debt, it’s a good idea to weigh the pros and cons. On the plus side, a debt consolidation loan can potentially lower your interest rate, and you’ll have only one payment to remember each month.
On the other hand, you may end up paying more in the long run because of any loan origination fees or other fees the lender may tack onto a debt consolidation loan. Similarly, even if you get a lower interest rate on your debt consolidation loan, if you’ve chosen a longer repayment period than you originally had on your debt, you may end up paying more in total interest over the full loan term. Lastly, if you use any credit cards you paid off with the debt consolidation loan to make new purchases, you could find yourself with both the loan to pay off and credit card payments to make, putting you in a worse financial spot.
Make the most of a debt consolidation loan by setting up reminders to make your single monthly payment on time and keeping any new credit card purchases within your budget if possible.
How we picked these loans
We reviewed more than a dozen debt consolidation loans from a variety of lenders to come up with our top picks. The criteria we used to make our choices included interest rates, fee structures, loan amounts, repayment options, a prequalification option and direct payments to creditors, as well as other perks like rate-beat programs and financial education resources.
Weigh your options
To better understand the total cost of any personal loans you’re considering, use an online calculator like Credit Karma’s simple loan calculator. A loan calculator can help you estimate your monthly payment and how much you’d pay in interest versus principal over the length of the loan.
About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.
*Annual Percentage Rates, terms of loan and monthly payments presented are estimated based upon analysis of information you entered, your credit profile and/or available rate information from lenders. While efforts have been made to maintain accurate information, the loan information is presented without warranty and the estimated APR or other terms presented do not bind any lender. Lenders generally have a range of available APRs (for example, a lender’s range might be 5% to 36%) and only borrowers with excellent credit will qualify for the lowest rate available. Your actual APR will depend upon factors evaluated at the time of application, which may include credit score, loan amount, loan term, credit usage and history. All loans are subject to credit review and approval. When evaluating offers, please review the lender’s Terms and Conditions for additional details. The loan amount shown here doesn’t include possible origination fees charged by the lender. If the lender charges an origination fee, it will be deducted from your loan amount. Consider adjusting your loan amount to account for this.
††The opinions you read here come from our editorial team. Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when it’s posted.
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