The Best Debt Consolidation Loans: 2020

Best Debt Consolidation Loans

It can be frustrating to deal with multiple debt payments. Even worse, when you’re paying high-interest rates on one or more debts each month, more of your payments are going toward fees than paying off your principal.

Mounting debt has become a fact of life for many Americans. According to the New York Fed’s latest report, U.S. household debt hit a record high $13.86 trillion this year, with a stunning 20 quarterly increases in a row. 

If you’re struggling with mounting debt from credit cards, medical bills, auto loans, student loans, and other sources, you’re certainly not alone. But making monthly payments to multiple creditors—with different amounts, due dates, and interest rates—can be confusing and expensive.

A debt consolidation loan can help you combine several high-interest debts into a single monthly payment. But everyone’s situation—and credit profile—is slightly different. Here are some of the things you need to know about using personal loans for debt consolidation and several lenders that may be able to help.

Before You Consider Personal Loans for Debt Consolidation

Before you apply for personal loans to consolidate your debt, you should consider another option. Some major credit cards have an introductory offer with 0% APR, which can also apply to balance transfers.

If you can get approved for one of these balance transfer credit cards—some of which have 0% APR for as long as 21 months—you can use this to pay off your debt. Just make sure that you pay off the credit card before the promotional rate expires, or you’ll end up in another high-interest debt situation.

Let’s assume that you have $10,000 in debt with an average APR of 28%. If you’re only making minimum payments, you’re paying about $400 per month and not making much of a dent in the principal.

If you qualify for a 0% APR balance transfer credit card with a 21-month introductory period, you can get completely out of debt by the end of that introductory period. This will save you more than $13,000 in interest payments and over 17 years’ worth of debt payments. But a balance transfer credit card isn’t the solution for everyone. Another popular debt consolidation option is using online personal loans.

Do Debt Consolidation Loans Hurt Your Credit?

If you have high-interest debt in multiple accounts, there’s a good chance that your credit score is already suffering. Debt consolidation can help you get out of debt by lowering your overall monthly payments, but you may see an initial decline in your credit score.

When you consolidate debt, several things can cause your credit score to temporarily drop.

  • New credit applications: Applying for any type of loan or credit card requires that a lender perform a hard inquiry on your credit, which lowers your credit score slightly.
  • New credit account: Opening a new credit account, such as a personal loan or credit card, will temporarily lower your credit score.
  • A low average age of credit: A new credit account also reduces the average age of your credit, which can impact your credit score.

These things may sound awful, but debt consolidation can increase your credit score in the long run. The process can do this by lowering your credit utilization ratio, which is the measure of how much of your overall credit you’re using. Also, as long as you make your payments on time, you will see your credit score continue to rise.

Some of the other benefits of debt consolidation are that it simplifies your payments and can save you money. If you are paying multiple lenders each month, consolidating your debt makes this easier because you only need to pay one lender. As long as you qualify for a loan with a lower interest rate than the one you’re already paying, you will also save money with debt consolidation.

Let’s assume you have $10,000 in debt with an average APR of 28%. You could save $137 per month by consolidating with a personal loan at 12% for 48 months. But, here’s something else to consider: you’d pay over $11,000 less in interest with the debt consolidation loan, and be out of debt 186 months (15.5 years) sooner. 

The Best Personal Loans for Debt Consolidation

If you’re looking for personal loans for debt consolidation, there are many choices. Online lenders generally offer better loan terms to consumers whose credit scores may disqualify them from credit unions or traditional banks. Here are some of the top personal loan companies competing for your business.


Payoff is an online personal lender that offers loans between $5,000 and $35,000, with fixed-rate APRs ranging from 5.99% to 24.99%. While it does charge an origination fee from 0% to 5%, it does not charge other common fees such as application, prepayment, check processing, and late fees.

Payoff’s personal loan program focuses on helping its clients pay off credit card debt, so having credit card debt is a requirement for approval. Other requirements include a credit score of at least 640, an annual income of at least $25,000, and a debt-to-income ratio of 50% or less.

Marcus by Goldman Sachs

Marcus was formed in 2016 and is the consumer lending section of Goldman Sachs USA. Its loans range from $3,500 to $40,000, with rates from 5.99% to 28.99% and terms between 36 and 72 months.

Marcus works with clients that have fair to excellent credit. A minimum 660 credit score and proof of employment are required. The company also charges no fees and even allows a single payment deferment after 12 consecutive on-time payments.


Lightstream is a highly respected online personal lender for borrowers with good credit. It is part of SunTrust Bank and offers loans from $5,000 to $100,000—varying by state. APRs generally range from 3.99% to 16.99%. Repayment terms range from 24 to 144 months.

The lender gives discounts for using AutoPay and promises to “beat” other lenders rates. Lightstream is also a no-fee lender, meaning there are no origination, late, or administrative fees. To qualify, you need at least a 670 credit score. 


If you have had trouble getting approved for a personal loan, Avant is an online lender that may be able to help. Avant’s loan terms range from 24 to 60 months, with APRs from 9.95% to 35.99%. Avant offers loans from $2,000 to $35,000. While they don’t charge early payment fees, they do charge an origination fee, which is spelled out in your offer. The company is also known for funding its loans quickly.

Freedom Plus

Freedom Plus offers personal loans that can be used for debt and credit card refinancing. You can borrow from $7,500 to $40,000, and the lender’s APRs range from 5.99% to 29.99%. Repayment terms are from 24 to 60 months. This lender does charge an origination fee, ranging from 0% to 5% of the loan amount. A minimum credit score of 640 is required, but the average is closer to 700. 

Choosing the Best Debt Consolidation Loan

There are a ton of options for debt consolidation loans, making it overwhelming and difficult to choose the right one. If you can qualify for a 0% APR credit card, this should be your first choice. If this doesn’t work out, here are several tips to ensure that you’re getting the best deal.

Understand the Requirements

The various personal loan lenders have different requirements for their online loans. When you’re looking for a debt consolidation loan, each lender is going to evaluate your creditworthiness based on several factors:

  • Credit score: This is a single number, and the threshold varies by each lender. The higher your credit score, the more likely you are to qualify for a personal loan.
  • Credit history: Some online lenders want to verify that you have had no bankruptcies in the last one to three years. They will also look at any charge-offs, delinquent payments, and the volume of credit inquiries you’ve had over the past year.
  • Debt-to-income ratio: This is the percentage of your monthly income, before taxes, that goes to paying monthly debt, including housing expenses. A higher percentage—50% or over—is considered poor, and a lower one—36% or under—is more favorable.
  • Employment status: Many lenders will ask for proof of income, and some will have minimum monthly income requirements.

Get Pre-qualified

You can take some of the guesswork out of applying for personal loans by seeing which ones you pre-qualify for. At Online Loans, you can provide some basic personal information to receive a list of the loans and rates that you are most qualified for, without affecting your credit score.

Once you get this list, you can narrow down your selections and submit a formal application to one or more lenders. Those lenders will check your credit and send you an offer for a personal loan that you can use to consolidate your debt.

Weigh Your Options

Before you accept any offers from an online lender, you want to weigh your options carefully. Some of the factors that you should consider include:

  • Total cost: Having a lower monthly payment is a good first step, but it’s important that you look at the total cost of your loan. Compare the new option to what you are currently paying to ensure that you are putting yourself in a better financial position.
  • Origination fees: Many lenders will charge you an origination fee with their loans. This is generally calculated as a percentage of the total loan amount and is usually 1% to 6%. Try to find lenders that don’t have these fees or that charge low fees.
  • Prepayment penalties: If you want to pay off your loan early, watch out. Some lenders state that they will penalize you for early prepayments. 
  • Other fees: Other lenders will charge a fee simply to process your application or tack on other fees such as late payment fees.

Living with debt can be challenging. The good news is that several options are available that can help you break free from crippling and ongoing monthly payments. Whichever solution you choose, be sure that you also address any habits that could place you back in the same position and impact your long-term financial health.

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