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Best Debt Consolidation Loans of 2021

Best Debt Consolidation Loans of 2021

Making minimal credit card payments is more difficult and time-consuming than paying off debt with a low-interest debt consolidation loan.

If you need to combine credit card debt or other obligations collected during the coronavirus crisis, one of these loans could help.

This guide to the best debt consolidation loans discusses how to get a personal loan and how to choose the correct one for your circumstances.

What Is the Best Debt Consolidation Loan Company?

Debt consolidation loans allow debtors to consolidate several high-interest obligations into a single monthly payment. Compare our recommendations for the finest loan alternatives for people with all types of credit.

Best for low interest: LightStream

If you’re like many Americans who have large credit card amounts, you’re probably seeking for strategies to get out of debt. Debt consolidation loans are one option for lowering your debt and making it easier to pay it off.

SunTrust Bank’s nationwide online consumer loan division, LightStream, merged with BB&T in 2019 to form Truist. LightStream’s online personal loans are unique in that they can be up to $100,000 and utilized for almost any purpose other than refinancing current LightStream loans. Personal loans are accessible in all 50 states to applicants with good to exceptional credit.

  • Minimum FICO credit score: N/A
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 144 months
  • Better Business Bureau rating: A+

Best for low minimum loan amounts: PenFed Credit Union

Members of the Armed Forces, the Department of Defense, the Department of Homeland Security, military associations, qualifying veterans and retirees, and their families are all served by PenFed Credit Union.

However, membership in the military is not essential to apply for a loan or join a credit union. In all 50 states, the credit union offers personal loans to eligible members and co-borrowers.

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $500 to $20,000
  • Repayment terms: up to 60 months
  • Better Business Bureau rating: A+

Best for borrowers with no credit or poor credit: Upstart

Upstart is a personal loan marketplace lender that links borrowers and investors online. With the exception of Iowa and West Virginia, it makes loans of up to $50,000 to customers with fair to excellent credit across the country.

More than $7 billion in loans have been created since its inception in 2012. Many of the platform’s loan decisions are automated and based on artificial intelligence.

  • Minimum FICO credit score: 620
  • Loan amounts: $1,000 to $50,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best for debt consolidation: Payoff

Payoff provides personal loans to help people pay off credit cards and other high-interest debt. It operates in most states and offers up to $40,000 in loans.

Payoff is not a bank; rather, it collaborates with lending partners to make loans. The organization is situated in California and describes itself as a financial wellness firm.

Payoff developed a subsidiary company, Happy Money, in 2017, that takes a psychological approach to money. Payoff is now a part of the Happy Money family of services.

  • Minimum FICO credit score: 640
  • Loan amounts: $5,000 to $40,000
  • Repayment terms: 24 to 60 months
  • Better Business Bureau rating: A+

Best for digital customer care: Rocket Loans

Except for Iowa, West Virginia, and Nevada, Rocket Loans offers personal loans to qualified consumers in every state in the United States. These loans are for persons with fair to excellent credit who need to borrow up to $45,000 for debt consolidation, home upgrades, medical costs, or other commercial or personal purposes.

  • Minimum FICO credit score: undisclosed
  • Loan amounts: $2,000 to $45,000
  • Repayment terms: 36 to 60 months
  • Better Business Bureau rating: A+

Best for risky borrowers: Avant

Avant has issued personal loans to more than 800,000 consumers nationally since 2012. Borrowers with fair to exceptional credit may be eligible for loans ranging from $2,000 to $35,000.

  • Minimum FICO credit score: 550
  • Loan amounts: $2,000 to $35,000
  • Repayment terms: 24 to 60 months
  • Better Business Bureau rating: A

Best for no origination fee: Marcus by Goldman Sachs

Marcus is the consumer bank and lending branch of Goldman Sachs, an investment bank. The lender, which was founded in 2016, offers personal loans of up to $40,000.

  • Minimum FICO credit score: 660
  • Loan amounts: $3,500 to $40,000
  • Repayment terms: 36 to 72 months
  • Better Business Bureau rating: A+

Best for loans of up to $100,000 with no fees: SoFi

SoFi, or Social Finance, is a company that provides personal loans up to $100,000 to customers with good to exceptional credit.

The lender is recognized for giving no-fee loans and operates nationwide, but does not offer personal loans in Mississippi. SoFi also offers student loans, student loan refinancing, house loans, and small business finance in addition to personal loans.

  • Minimum FICO credit score: 680
  • Loan amounts: $5,000 to $100,000
  • Repayment terms: 24 to 84 months
  • Better Business Bureau rating: A

What Are Debt Consolidation Loans and How Do They Work?

A debt consolidation loan is a sort of personal loan that allows you to consolidate many high-interest obligations into a single low-interest monthly payment. Debt consolidation loans can be used to consolidate unsecured obligations such as:

  • Credit card bills.
  • Medical bills.
  • Personal loans.
  • Payday loans.

Unlike credit cards, debt consolidation loan interest isn’t compounded — compound interest is interest on interest. The interest rate is usually fixed for the duration of the loan.

Banks, credit unions, and online lenders all provide unsecured personal loans for debt reduction. Some debt consolidation firms provide online prequalification and approval.

Because lenders estimate your terms using a soft credit check that doesn’t effect your credit score, prequalifying can make comparing loan offers and closing expenses simple.

You must meet the lender’s credit and debt-to-income ratio requirements because collateral is not required for these loans. When you apply, your real rate is determined by your creditworthiness; the higher your credit score, the more likely you are to receive a cheap interest rate.

Are Debt Consolidation Loans a Good Idea?

Debt consolidation loans may be beneficial if they allow you to save money on interest, reduce your monthly payments, or improve your credit score. Here are a few examples of how debt consolidation might help:

Savings with interest. If you have high-interest debt, a debt consolidation loan with a reduced interest rate can help you save money.

If you consolidate two credit card balances with annual percentage rates of 16.24 percent and 23.99 percent, respectively, into a debt consolidation loan with a 15 percent APR, you will save money on interest.

“Rates can be far cheaper than credit card rates,” says John Ulzheimer, a credit analyst who previously worked for Equifax and Experian. Loans must also be repaid within a certain time frame, which gives you a deadline for paying off your debt. He adds, “You can’t claim the same about credit cards.”

Payments are lower each month. By spreading out your debt payments over several years, a debt consolidation loan may make it easier to make on-time payments. Your credit score can be boosted by a track record of on-time payments.

Credit score has improved. You can increase your total accessible credit by taking out a new loan and leaving combined accounts open but unused. This lowers your credit utilization ratio, which can help you improve your credit score.

Do Debt Consolidation Loans Hurt Your Credit Score?

As long as you make your payments on time, debt consolidation loans might help you improve your credit score. But only if you utilize them for what they were designed for: paying off your debt rather than adding to it.

“You’ll be transforming credit-harming revolving debt into almost-harmless installment debt. You’ll be delighted with your new scores as long as you don’t charge up your cards again “According to Ulzheimer.

Consider the following risks of debt consolidation loans:

  • It’s possible that you’ll end up paying more in interest. There’s no assurance that your debt consolidation loan’s interest rate will be lower than your credit card or other types of debt. Furthermore, if you extend the repayment time, you may end up paying more interest in the long run.
  • It’s possible that you’ll wind up with more debt. Credit card debt consolidation frees up cards to be used again and add to your debt.
  • Other options might be more cost-effective. A 0% balance transfer credit card or a home equity loan may be a better option for a reduced interest rate.

Who Can Get a Debt Consolidation Loan?

Consider whether you’re likely to get approved for a debt consolidation loan before shopping around. The majority of lenders consider:

Your credit rating. Companies that offer debt consolidation loans usually require a credit score of at least fair or good. You’ll need a higher credit score to acquire a cheap interest rate.

A fair credit score indicates to lenders that you are a bigger risk, and you will be charged a higher interest rate than a person with excellent credit. You may be eligible for a lender’s lowest consolidation loan rate if you have very good or excellent credit. With bad credit, you might not be able to meet a lender’s minimum credit score to qualify for a debt consolidation loan.

Your earnings. Lenders may impose a minimum yearly income requirement and take your debt-to-income ratio into account. The percentage of your gross monthly income that goes toward debt repayment is known as your debt-to-income ratio.

A lower debt-to-income ratio is preferable because it indicates that you are not devoting too much of your income to debt repayment. Some debt consolidation lenders accept debt-to-income ratios as high as 50%, implying that your monthly debt obligations should not exceed half of your total monthly income.

Your credit history is important. Most lenders prefer to see a credit history that is devoid of bankruptcies, tax liens, repossessions, and foreclosures. Because they can minimize the risk of lending, several lenders allow co-signed or joint applications.

However, proceed with caution if you utilize a co-signer. You risk damaging your relationship as well as your co-creditworthiness signer’s if you employ a co-signer to help you qualify for a loan and then default.

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