Debt consolidation is a financial strategy that allows you to combine multiple debts into a single loan with a potentially lower interest rate and more manageable monthly payments. Whether you have credit card debt, medical bills, or personal loans, consolidating your debt can help you save money and simplify your finances. In 2024, several lenders offer competitive personal loans tailored for debt consolidation. This guide highlights the best personal loans for debt consolidation based on interest rates, loan terms, fees, and customer service.
What Is Debt Consolidation?
Debt consolidation involves taking out a new loan to pay off multiple existing debts. The goal is to simplify your payments and potentially lower your overall interest rate, helping you pay off your debt faster and with less stress. Debt consolidation loans are typically unsecured personal loans, meaning they don’t require collateral.
Top Personal Loans for Debt Consolidation in 2024
1. SoFi
SoFi is known for offering personal loans with low interest rates, no fees, and a wide range of loan amounts. It’s an excellent option for borrowers with good to excellent credit who want to consolidate high-interest debt.
- Loan Amounts: $5,000 to $100,000
- APR: 7.99% – 23.43% (with autopay discount)
- Loan Terms: 2 to 7 years
- Fees: No origination fees, no prepayment penalties, no late fees
- Credit Score Requirement: 680+
- Why SoFi Stands Out: SoFi offers competitive rates and borrower perks like career coaching, unemployment protection, and access to financial advisors.
2. LightStream
LightStream, a division of SunTrust Bank, is known for providing some of the lowest interest rates on personal loans, particularly for borrowers with excellent credit. If you have good credit, LightStream may offer one of the best loan options for debt consolidation.
- Loan Amounts: $5,000 to $100,000
- APR: 7.99% – 24.99% (with autopay discount)
- Loan Terms: 2 to 12 years
- Fees: No origination fees, no prepayment penalties
- Credit Score Requirement: 660+
- Why LightStream Stands Out: LightStream offers a rate beat program, where it will beat any competitor’s rate by 0.10% (terms apply). The long loan terms allow for lower monthly payments.
3. Discover Personal Loans
Discover is a trusted name in the financial industry, offering personal loans with flexible repayment terms and no fees. Discover’s personal loans are ideal for debt consolidation, as they allow you to pay off creditors directly.
- Loan Amounts: $2,500 to $40,000
- APR: 7.99% – 24.99%
- Loan Terms: 3 to 7 years
- Fees: No origination fees, no prepayment penalties
- Credit Score Requirement: 660+
- Why Discover Stands Out: Discover offers direct payment to creditors, simplifying the debt consolidation process. Additionally, you get a 30-day money-back guarantee if you change your mind about the loan.
4. Marcus by Goldman Sachs
Marcus offers personal loans with no fees and competitive rates, making it a solid choice for debt consolidation. The lender has a simple application process and is well-suited for borrowers with good to excellent credit.
- Loan Amounts: $3,500 to $40,000
- APR: 6.99% – 24.99% (with autopay discount)
- Loan Terms: 3 to 6 years
- Fees: No origination fees, no prepayment penalties, no late fees
- Credit Score Requirement: 660+
- Why Marcus Stands Out: Marcus allows you to customize your payment date and offers a feature where if you make 12 consecutive on-time payments, you can defer one payment without interest accrual.
5. Payoff
Payoff specializes in personal loans for credit card debt consolidation. If your primary goal is to pay off high-interest credit cards, Payoff is one of the best lenders available, offering low rates specifically for credit card consolidation.
- Loan Amounts: $5,000 to $40,000
- APR: 11.09% – 29.99%
- Loan Terms: 2 to 5 years
- Fees: Origination fee (0% – 5%), no prepayment penalties
- Credit Score Requirement: 640+
- Why Payoff Stands Out: Payoff provides personalized customer service and a focus on helping borrowers improve their credit. The company also offers tools for financial wellness and tracking credit score improvements.
6. Upgrade
Upgrade offers personal loans with flexible terms and low credit score requirements, making it accessible to a wider range of borrowers. If you have fair credit, Upgrade may offer a good option for debt consolidation with a streamlined application process.
- Loan Amounts: $1,000 to $50,000
- APR: 8.49% – 35.99%
- Loan Terms: 2 to 7 years
- Fees: Origination fee (1.85% – 8%), no prepayment penalties
- Credit Score Requirement: 560+
- Why Upgrade Stands Out: Upgrade’s low credit score requirement makes it accessible for borrowers with fair or poor credit, and the option to check rates without impacting your credit score is a bonus.
7. Avant
Avant is a lender that specializes in providing personal loans to individuals with fair credit. While the rates may be higher than some competitors, Avant offers flexible terms and quick funding, making it a viable option for debt consolidation for those with lower credit scores.
- Loan Amounts: $2,000 to $35,000
- APR: 9.95% – 35.99%
- Loan Terms: 2 to 5 years
- Fees: Origination fee (0% – 4.75%), no prepayment penalties
- Credit Score Requirement: 580+
- Why Avant Stands Out: Avant offers fast funding, often delivering loan proceeds within 1 to 2 business days, and has more flexible requirements for borrowers with less-than-perfect credit.
How to Choose the Best Debt Consolidation Loan
When selecting a personal loan for debt consolidation, consider the following factors:
1. Interest Rate
The interest rate will significantly impact the cost of your loan. Borrowers with good credit scores typically qualify for lower interest rates. Compare the annual percentage rate (APR) among lenders to find the best deal. Make sure to check if the rate is fixed or variable—fixed rates remain the same over the life of the loan, while variable rates can change.
2. Loan Term
The loan term refers to how long you have to repay the loan. Shorter terms usually mean higher monthly payments but less interest paid over the life of the loan, while longer terms offer lower payments but may cost more in interest.
3. Fees
Some lenders charge origination fees, which are deducted from the loan amount upfront, or prepayment penalties, which apply if you pay off your loan early. Look for lenders with low or no fees to maximize your savings.
4. Credit Score Requirements
Each lender has different credit score requirements. Some lenders are more flexible and offer loans to individuals with fair or poor credit, while others may only approve borrowers with excellent credit. Know your credit score before applying to find the best loan options for your credit profile.
5. Funding Speed
If you need to consolidate debt quickly, consider the funding speed of the loan. Some lenders provide funds within one business day, while others may take up to a week.
6. Direct Payment to Creditors
Some lenders offer direct payment to creditors, meaning they will pay off your existing debts directly, simplifying the debt consolidation process. This option can help you avoid the temptation of using the loan funds for other expenses.
Is a Debt Consolidation Loan Right for You?
A debt consolidation loan can help you simplify your payments, lower your interest rates, and pay off your debt faster. However, it’s important to consider whether this strategy is right for you. A debt consolidation loan may be beneficial if:
- You have high-interest debt, such as credit card debt.
- You’re struggling to manage multiple payments each month.
- You can qualify for a lower interest rate than your current debt.
However, if your credit score is low or you’re unable to secure a loan with favorable terms, other strategies, such as negotiating with creditors or exploring balance transfer credit cards, may be more appropriate.
Conclusion
Debt consolidation can be a smart way to regain control of your finances, especially if you’re dealing with high-interest debt. By carefully comparing loan offers from top lenders like SoFi, LightStream, Discover, and others, you can find the best personal loan for debt consolidation that meets your needs. Focus on getting a low interest rate, manageable loan term, and minimal fees to maximize the benefits of consolidating your debt.