Getting out of debt can feel like a monumental task, especially when it’s credit card debt. It can be easy to get complacent with low minimum monthly payments, but when combined with high interest rates, they can keep you in debt for years to come. This situation can also ruin your credit.
If you’re looking for a way out from under your credit card debt, there are several paths you can take to get out of debt. Debt consolidation is just one option, and if your credit is still in good shape, it may be the best.
Here’s our ranking of the best debt consolidation companies and what you should know before you choose one.
- The best debt consolidation loans of 2022
- Best for side-by-side comparisons: LoansUnder36
- Best for credit card debt: Tally
- Best for a variety of debt options: AmOne
- Best alternative to consolidation loans: Freedom Debt Relief
- What is a debt consolidation loan?
- How to apply for a debt consolidation loan
- How to pick the right debt consolidation loan for you
- FAQs about debt consolidation loans
- Bottom line
The best debt consolidation loans of 2022
There are several ways you can consolidate your debt with a loan, but some are better than others. It’s important to shop around and compare multiple options before you decide on one. Here are our top choices:
Best for side-by-side comparisons: LoansUnder36
LoansUnder36 isn’t actually a lender. Rather, it’s a lending marketplace that can connect you with more than 100 lenders in a matter of minutes. Each loan option offers interest rates under 36%, which is much lower than the triple-digit rates that are common with some bad credit personal loans and other short-term financing options. 1
Once you submit your application, you’ll receive any loan offers that you qualify for. Some applicants may be able to compare loan offers from multiple lenders. Because LoansUnder36 gives you access to so many lenders at once, you’ll get a good idea of what you could qualify for when it comes to your goal of debt consolidation.
There’s no minimum credit score you need to apply. But remember that a higher credit score will give you better odds of getting approved and receiving the best loan terms. Loans range from $500 to $35,000, and you can choose a repayment plan from two months to six years.
It’s certainly a good option if your credit is less than stellar because it ensures a cap on the interest rate. But if you have good credit or excellent credit, you may still want to compare what you see from LoansUnder36 with other online lenders to get the lowest rate possible for you.
… or read our detailed LoansUnder36 review
Best for credit card debt: Tally
Tally is a mobile app that goes beyond just giving you a loan — it actually helps you manage your debt consolidation and repayment process. If you get approved, Tally gives you a line of credit based on how much you owe and your high-interest debt is moved over to it.
Then, the lender takes over payments for your credit cards, ensuring that you’ll never risk making late payments again. It also runs the numbers to determine the smartest way to pay down your balances to save you money on interest. If you link credit cards to the app that have a lower interest rate than the Tally credit line, Tally pays just minimum payments on those cards.
You’ll receive one statement per month from Tally with a minimum payment due. The minimum payment is designed with the objective that you want to become completely debt-free. Depending on your goals, you may not want to hand off your debt management to someone else in this way. So you also have the option to turn off the automatic minimum payment feature. In that case, Tally will remind you to pay your bill, and you can make credit card payments in the app or directly with the card issuer.
If you’re overwhelmed and in need of help, Tally taking over the reins can be worthwhile. Check your credit score before you apply, though — the minimum FICO score to qualify is 660, which is considered a fair credit score.
… or read our detailed Tally App review
Best for a variety of debt options: AmOne
AmOne is another lending marketplace that can connect you with multiple lenders with a single inquiry. Loan amounts range from $1,000 to $50,000, giving you a little more flexibility than LoansUnder36 if you have high balances. AmOne works with credit scores from excellent to poor, or even those without a credit score, but it cannot guarantee loan approval.
If you don’t qualify for a personal loan to consolidate your debt, the company can provide you with some alternatives. More specifically, you may be able to get on a debt management plan or begin the process of debt settlement.
Both of these options aren’t as ideal as debt consolidation. In fact, debt settlement can pose a risk to your credit score because it requires you to stop making payments while you accumulate enough money to negotiate with your creditors. But if your credit is in poor shape and the only alternative is bankruptcy, these two choices could be much more appealing.
AmOne could be an excellent choice if your credit is bad, but even people with decent credit can benefit from the personal loan marketplace because it makes it possible to compare several options side by side.
Visit AmOne Personal Loans
… or read our detailed AmOne Personal Loans review
Best alternative to consolidation loans: Freedom Debt Relief
If you’re worried that debt consolidation and debt management aren’t in the cards for you, Freedom Debt Relief provides a direct way to start the debt settlement process.
With Freedom Debt Relief, you don’t have to pay their fee until the company has successfully negotiated your balance. But that charge can be anywhere between 15% and 25% of your enrolled debt amount, so it can be expensive, depending on how much debt you have. Though debt settlement could still cost less than bankruptcy, and give you the clean financial slate you need to get back on the right track.
In general, debt settlement is best suited for people who are already behind on payments. Because the process requires you to stop making your payments for a period of time, the potential damage to your creditworthiness is a moot point if you’re already behind.
If your credit is in good enough shape for a debt consolidation loan and you can afford the monthly loan payments, it’s best to avoid the potential credit woes that debt settlement can cause.
Visit Freedom Debt Relief
… or read our detailed Freedom Debt Relief review
What is a debt consolidation loan?
A debt consolidation loan is typically an unsecured loan that you use specifically to pay off high-interest debts — typically it’s to help you get out of credit card debt. Debt consolidation loans typically have a fixed interest rate, as opposed to the variable interest rate on your credit cards.
Here’s how it works: You apply for a personal loan, then once you receive the funds, you use them to pay off your credit card balances. You’ll then have just one monthly payment on the new loan instead of multiple payments and due dates to handle with your credit cards. Of course, there are some exceptions to this process as we discussed above with Tally. But in general, this is what you can expect.
Debt consolidation loans work best if the interest rate on the loan is lower than the rate on the debt you’re paying off. If they’re similar or even slightly higher, it still may be worth it because the loan gives you a set repayment schedule instead of a minimum payment that can keep you in debt indefinitely.
The best debt consolidation loans offer a mix of low interest rates, flexible repayment terms, easy payment options, no fees, and more.
In addition to getting rid of high-interest credit card debt, you can also use a debt consolidation loan to pay off other types of debt, including:
- Other personal loans
- Retail or store financing
- Payday loans and other short-term debt
- Medical bills
You can also technically pay off student loans, secured loans like an auto loan, and really any other type of loan, but it’s generally best to avoid using the money to pay those debts. These types of loan can often be refinanced at a much lower interest rate than offered by typical debt consolidation loans.
How to apply for a debt consolidation loan
To get approved for a debt consolidation loan, you typically need to provide information about yourself, including your name, address, Social Security number, date of birth, annual income, and contact information. You’ll also need to share how much you want to borrow.
In some cases, you may need to provide information about your debts. For example, Tally would need account access to make payments on your behalf. But with many personal loans, you’ll get the money directly from the lender, then use it to pay your balances.
Depending on the situation, a lender may also ask for documentation to verify your identity, address, and income. And you’ll typically need to provide your bank account information, so you can receive the funds.
During the loan approval process, the lender will look at several different factors to determine whether you're eligible for a loan and how much interest to charge you. Factors they typically look at include your:
- Credit score
- Credit history
- Debt-to-income ratio (how much of your gross monthly income goes toward debt payments)
- Loan purpose or reason for borrowing
Each lender has a different set of criteria when it comes to qualifying potential borrowers, so how heavily weighted each of these factors are in the offer can vary.
How to pick the right debt consolidation loan for you
For the most part, debt consolidation loans all do the same thing. But each one can carry different features that can impact your ability to pay and how much interest gets charged. Here are some of the factors to consider when you’re shopping for a debt consolidation loan:
- Loan amounts: Make sure you pick a lender that can give you what you need. If your desired loan amount doesn’t meet a lender’s minimum loan amount, it’s better to go somewhere else than to borrow more than you need.
- Pre-qualification: Many lenders allow you to get pre-qualified and view a loan offer before you submit an application. This process involves just a soft credit check that doesn’t hurt your credit score. If you want to avoid multiple hard inquiries on your credit reports in a short time period, opt for lenders that offer pre-qualification as a first step.
- Repayment terms: The length of your loan determines how long you’ll be in debt and, to a lesser extent, what your monthly payments and interest rate will be. Longer repayment terms are typically associated with lower monthly payments but also higher interest rates.
- Interest rates: Some lenders specialize in working with people who have stellar credit and offer low loan rates. But others may provide more accessibility to people with lower credit scores in exchange for higher interest rates. This is the most important reason to shop around because scoring a lower interest rate can save you hundreds or even thousands of dollars.
- Origination fee: Many lenders charge an upfront fee, which is taken from your loan disbursement before you receive it. These fees can range from 1% to 8% in some cases. Not all lenders charge one, so if you have great credit, look for lenders that don’t have an origination fee.
- Prepayment penalties: These are uncommon with personal loans, but they do exist. A prepayment penalty assesses a fee if you pay off your loan ahead of schedule. If you find a lender that charges one, it’s best to look elsewhere.
- Autopay: Most lenders offer this feature nowadays. With automatic payments, the lender is more likely to receive monthly payments on time, and you’re less likely to miss one or incur a late fee. Autopay can be a win for both parties.
- Approval time: Traditional banks and credit unions might take days to approve you for a loan, whereas you could be approved on the same day through an online lender. Some lenders can also get you your money as quick as the same day or the next business day.
- Other features: Some lenders may also offer other features to their borrowers, such as access to your credit score, unemployment protection, interest rate discounts, the ability to add a cosigner, and more.
Resist the temptation to focus solely on the interest rate when choosing your loan, though. The best debt consolidation loans offer a mix of features that can make it easier to pay down your debt. With so many different features to watch out for, it’s crucial that you review each debt consolidation loan carefully, so you can pick the right one for you.
In determining our list of the best debt consolidation options, we examined our partner companies and organized them according to factors that we consider critical to the consumer. We did not evaluate all companies in the category, and we aimed to choose a variety of debt consolidation strategies so that the consumer can get a full picture of their options and decide which approach is the best fit for them and their specific financial situation.
FAQs about debt consolidation loans
Do consolidation loans hurt your credit score?
Virtually anytime you apply for credit, the lender will perform a hard inquiry, which could affect your credit score. But if you’re paying off credit cards, a debt consolidation loan will reduce your credit utilization rate, which could help your credit score rather than hurt it. And as long as you make your payments on time, that positive payment history could help improve your credit score too.
What credit score do I need for a debt consolidation loan?
Debt consolidation loans are available for people across the credit spectrum. Unfortunately, lower credit scores typically correlate with higher interest rates, so if your credit is less than stellar, debt consolidation may not be the least expensive way to go.
Is a debt consolidation loan better than a balance transfer credit card?
Whether a debt consolidation loan or balance transfer credit card will be smarter for you depends on your situation. Unlike the best balance transfer cards, debt consolidation loans can’t offer promotions for a 0% annual percentage rate. But consolidation loans do provide a set repayment schedule, so if you’ve had a hard time staying motivated to pay off your debt, a consolidation loan may do a better job of keeping you on track than another credit card.
When is debt relief a better idea versus debt consolidation?
If you’re doing research to compare debt settlement vs. debt consolidation (the former is sometimes also called debt relief), you should know that the right one for you depends on your situation.
Debt settlement is typically best used if you’re behind on payments and wouldn’t be able to qualify for a debt consolidation loan or afford its monthly payment. Before you get to that point, consider a debt management plan, which can potentially give you better terms without ruining your credit.
Is a personal loan or home equity loan better for debt consolidation?
Home equity loans may be tempting to use for debt consolidation. They typically charge much lower interest rates and may appear to provide more savings. But there are a few issues to keep in mind before you apply for one.
First, you need to have a certain amount of equity in your home before you can get a home equity loan. Also, home equity loans typically come with high closing costs, which neutralize some of the benefits of a lower interest rate.
Finally, if you can’t repay your home equity loan, you may lose your house. That’s not the case with a personal loan, which is unsecured debt with no collateral backing it.
Learning how to pay off debt can feel overwhelming, but there are several approaches you can take. Debt consolidation is one of the best ways to pay down high-interest credit card debt, but it’s important to take your time to shop around and compare multiple loans and other approaches before you settle on one.
The most important thing is to be proactive about your debt situation and do the research required to find the most effective path forward for you.