Debt consolidation loans can help you pay off high-interest credit cards (and other debts) with a single monthly payment at a lower interest rate.
It’s a kind of personal loan you can use to pay off other debts, so you can take advantage of a new loan’s lower interest rate. With a debt consolidation loan, you’ll pay less in interest, and you’ll have the convenience of making one monthly payment, instead of juggling monthly due dates for several cards or loans.
When comparing debt consolidation loans, start by searching for the lowest Annual Percentage Rate or APR. A loan’s APR is the most accurate number to use for comparison purposes, because it includes fees and charges as well as the interest rate.
APRs are an easy criteria for comparison -- but don’t stop there. Consider your loan amount too -- and if the rates or terms change for the specific amount you’re looking for.
Your credit score might also impact the APR you’re offered -- and it might be very different from the rate a lender promotes to entice you.
Most debt consolidation loans offer similar repayment terms, requiring on-time monthly payments with penalties when you’re late or not paying in full. Penalties should be clearly detailed, so check them out.
One more thought: your debt consolidation loan should come with low or no fees -- an industry standard you should expect. Origination fees -- a charge intended to cover the cost of processing your loan -- should be low, if they’re charged at all. It’s typically added to your loan balance or included in your APR.
Which are best debt consolidation loans to consider?
The APRs and other details listed here are current as of July 2021. Check with individual lenders for changes and updates.
Lender
Payoff
Est APR- 5.99 - 24.99%
Loan amount- $5,000 - $40,000
Credit score- 640
Lightstream
Est APR- 4.49 - 20.49%
Loan amount- $5,000 - $100,000
Credit score- 660
Marcus by Goldman Sachs
Est APR- 6.99 - 19.99%
Loan amount- $3,500 - $40,000
Credit score- 660
Upgrade
Est APR- 5.94 - 35.97%
Loan amount- $1,000 - $50,000
Credit score- 580
Upstart
Est APR- 6.95 - 35.99%
Loan amount- $1,000 - $50,000
Credit score- 580
Prosper
Est APR- 7.95 - 35.99%
Loan amount- $2,000 - $40,000
Credit score- 640
Discover
Est APR- 6.99 - 24.99%
Loan amount- $2,500 - $35,000
Credit score- 720
What is the smartest way to consolidate debt?
The best reason for consolidating your debt is to save money. Many credit cards, as well as payday loans, charge high, double-digit interest rates -- and most debt consolidation loans offer much lower rates.
When you consolidate your debts into one loan, you still have to pay your debt. Monthly payments are usually required with debt consolidation loans, just like with credit cards. But you’ll pay less in interest -- and it’s a lot easier, making one monthly loan payment instead of several different payments to different card issuers or lenders.
Another smart reason for consolidating debt: if you make regular, on-time payments, you’ll like see your credit score improve. That’s a huge bonus, especially if juggling multiple cards sometimes results in late fees.
How can I qualify for a debt consolidation loan?
A debt consolidation loan can be a great opportunity to relieve the burden of debt payments -- but it’s also a serious financial tool with strict terms and qualifications. Qualifying terms should be one of the first things you check when comparing loans.
The baseline requirements are common among lenders. Typically, you’re required to be a legal U.S. resident who is 18 years or older. Also, most lenders won’t accept you if you’re in foreclosure or bankruptcy.
Beyond those basic terms, your credit score is a major factor. Most lenders expect a score of 600 or higher to offer a debt consolidation loan. They also expect a healthy credit history, with a DTI of 45% or below. Your “DTI’ is your debt-to-income ratio, which is the percentage of your gross monthly income that you pay every month toward your debts.
Most lenders look for a minimum credit score in the mid-600s and a debt-to-income (DTI) ratio below 45 percent. DTI is the percentage of your gross monthly income that goes toward your monthly debt payments.
Keep in mind that a high credit score and a low DTI can really help with debt consolidation loans, translating to better APRs and larger loan amounts.
Use Bright as your personal finance app.
Does Bright offer debt consolidation loans?
Bright does not offer debt consolidation loans. But we offer two other solutions, Bright Credit Builder and Bright Balance Transfers. They’re smart alternatives, with competitive rates and built-in automation.
Bright Credit Builder is an easy way to boost your credit score. Once you’re signed up, we’ll set up an interest-free, secured line of credit and use it to make automatic payments on your cards, building a positive payment history and lowering your credit utilization. Bright Credit Builder focuses on utilization and payment history because as they improve, your credit score goes up!
Bright Balance Transfer offers a low-interest line of credit designed to pay off card debt fast while saving you from high interest charges. Once approved, Bright uses the funds from your Bright Balance Transfer to pay off your high-interest cards, moving those debts to our balance transfer program with its lower APR. Over the months ahead, Bright automates your new repayments, too, so you pay less in interest and it’s hassle-free. Bright Balance Transfers offers credit lines of up to $10,000 at APRs starting from 9.95%, depending on your eligibility.
Bright can also help get you debt-free by managing your card payments for you. With a personal Bright Plan, we’ll use our patented MoneyScience™ to study your finances, learn about your debt and make smart payments, always on time and optimized to save you money and get you debt-free fast.
If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your checking account and your cards, and let Bright do the rest.
