Debt Consolidation Loan Alternatives
Here are a couple of alternatives to debt consolidation loans to consider if you want to pay off your existing debt faster, or for less interest.
0% intro APR balance transfer credit card
The first option is to utilize a 0% balance transfer card. With a balance transfer credit card, you can shift your debt from one account to another, taking advantage of an introductory zero-interest opportunity. Just be sure to pay off the balance before the introductory period ends, or your remaining debt will begin accruing interest at the cards regular rate.
Another option is to tap into your existing home equity through a home equity loan. This can be a good option if you have good credit, and even if you have fair credit. A home equity loan allows you to utilize the equity thats already in your property. Just be aware of the potential pitfalls when using a home equity loan to pay off debt. This method turns your unsecured debt such as credit card balances and medical bills into a debt thats secured by your home. If you were to default on the loan, you could lose your property.
Debt consolidation loans can be a key part of any debt management plan. If youre juggling multiple debt balances, especially with higher interest rates, these unsecured personal loans may be worth considering.
Check out Credible to compare debt consolidation loan rates and find the one thats best for you.
Best Egg: Best For Low
Best Egg’s straightforward, to-the-point online personal loan platform offers funds to qualified borrowers who need to pay for medical expenses, make a large purchase, or consolidate high-interest debt on their credit cards.
The provider doesn’t come with all of the bells and whistles found on other platforms. For example, you can only choose between two repayment terms. You won’t get a discounted monthly payment when you sign up for automatic payments, either. Nor does Best Egg offer a convenient mobile app to manage your loans on-the-go.
Even so, Best Egg is still a top-ranking option for borrowers with a fair or good credit score. The platform often enables you to qualify for a lower interest rate than those found on credit cards or through other loan providers. You can also take advantage of extended payment periods to minimize your debt burden and repair your credit score.
Like many other providers, Best Egg allows you to prequalify for a loan using a soft credit check. After accepting the loan amount and the repayment terms, the provider will report your on-time payments to all three major credit bureaus. Best Egg charges certain fees, such as originating fees, but you can repay your loan ahead of schedule without worrying about a prepayment penalty.
- Loan Amounts: $2,000 to $50,000
- 5.99% to 29.99%
- Minimum Credit Score: 640
How To Find The Best Debt Consolidation Loan For Your Credit Card Debt
A debt consolidation loan is a personal loan that is used to consolidate or combine your debts to help you pay them off faster. There are quite a few benefits to finding the right debt consolidation loan for your personal finance goals. Dont let high debt drain your mind and spirit any longer start looking for a debt consolidation loan today! Lendahs team of knowledgeable representatives can help you along the way as you look for the best loans for credit card debt or the best unsecured loans!
Not sure how to get started? Here are the steps you should take.
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Buy Now Pay Later Plans
This popular alternative to credit cards allows you to purchase products and services now and repay the balance over a set period of time. Many BNPL apps offer payment plans that span six or eight weeks and are interest-free, though many charge late fees.
BNPL apps may also offer payment plans that span months or years. These longer installment plans usually charge interest. A major difference between BNPL apps and credit cards is that credit cards charge compound interest, meaning interest can be charged upon both the initial sum and any additional interest that accrues. BNPL apps charge simple interest, meaning interest is solely charged on the initial sum.
Check out CNET’s picks for best buy now, pay later apps.
Shop Around For Lenders
Research lenders who offer the type of debt consolidation youre seeking. Most offer online prequalification with a soft credit inquiry. If youre considering a debt consolidation loan, youll also get a sneak peek at potential loan costs to more effectively compare your options.
Getting prequalified takes the guesswork out of finding lenders willing to work with you. Furthermore, youll avoid applying to lenders who could deny you a loan or credit card and getting an unnecessary hard credit inquiry.
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Best For Bad Credit: Upgrade
Upgrade offers low minimum loan amounts to borrowers who dont have good credit.
Prequalification wont affect credit
Live customer service
Loans come with origination fees
Late fees and administrative fees
|Late fee of $25, administrative fee up to 4.75%|
|Time to Receive Funds|
Read the full review: Upgrade Personal Loans
Balance Transfer Credit Cards
Finally, you may consider transferring credit card debt to a new card through a process called balance transferring. Some credit cards offer 0% interest rates on balance transfers. After transferring your debt, you can make payments for 21 months without paying any interest. Following the 21-month period, most cards offer a low-interest rate of between 3% and 5%.
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What Is Debt Consolidation
Debt consolidation is a process where multiple debts, often from things like credit cards, are rolled into a single payment. This can make it easier to pay off debt faster and keep track of how much debt you have.
What is a debt consolidation loan and how does it work?A debt consolidation loan is a type of personal loan that can help you combine several high-interest debts into one new loan, ideally one with a lower interest rate. You pay off multiple debts with a single loan that has a fixed monthly payment. When managed responsibly, a debt consolidation loan can help you save money on interest and get out of debt faster.
Learn more: How debt consolidation loans work
With a debt consolidation loan, you apply to borrow the amount that you owe on your existing debts. Once approved for the loan, you receive the funds and use them to pay off your credit cards or other loans. In some cases, the funds can be sent directly to your creditors. From there, you begin making monthly payments on your new debt consolidation loan.
The most popular type of debt to consolidate is credit card debt because it typically has some of the highest interest rates. But you can also consolidate other debts, such as personal loans, payday loans and medical bills, although student debt is not able to be consolidated the way other types of debt can.
What Does It Cost To Consolidate Debt
It always costs money to borrow money, which is why you want to find the debt consolidation option with the lowest APR to save yourself the most money in the long run.
Different debt consolidation options come with their own set of interest rates and fees. For example, some personal loan lenders charge origination fees, while a home equity loan can incur appraisal fees and closing costs. Even a credit card balance transfer can come with a fee.
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Our Top Picks For Best Debt Consolidation Loans
- LightStream – Best for Excellent Credit
- SoFi – Best for Low Interest Rates
- PenFed – Best for Small Debt
- Fiona – Best for Bad Credit
- Discover – Best for Credit Card Debt Consolidation
- Minimum loan amount is $5,000
- Autopay discount option only available before loan funding
- Lowest rates require excellent credit
LightStream is our top choice for borrowers with excellent credit who dont want to pay origination fees or prepayment penalties on their debt consolidation loan. The company offers personal loans up to $100,000 with funding available the same day of approval, and has one of the lowest annual percentage rates , starting at 5.93% with an autopay discount.
LightStream also features a completely online application and a debt consolidation loan calculator with a soft credit check that wont lower your score. With its Rate Beat Program, LightStream claims it will lower your rate by .10 percentage points if you are approved by a competing lender for an unsecured loan with the same terms.
LightStream holds the #1 spot on J.D. Powers Consumer Lending Satisfaction Study of 2020.
- Funds are not available on the same day of approval
- Loan terms start at three years up to seven years
- Minimum loan amount is $5,000
SoFi takes the #4 spot in JD Powers Consumer Lending Satisfaction Study of 2020.
- Loans are up to only $50,000
- You need to be a member of the credit union to apply
- Some lenders will charge an origination fee of 1-6% of the loan amount
Marcus By Goldman Sachs: Best For Longer
Last but certainly not least, Marcus by Goldman Sachs rounds out the top 10 best debt consolidation loan providers. The online banking and lending branch of Goldman Sachs provides unsecured loans with competitive interest rates to borrowers with credit scores above 660.
The lending service offers a wide range of advantages, too. Marcus by Goldman Sachs provides rate discounts for users who register for automatic payments and doesn’t add any processing charges. That means you won’t have to pay an origination fee if you opt for a loan through Marcus.
Alongside easy online application and approval processes, Marcus usually provides funding for borrowers throughout the United States within a week. To ensure you get the best rate, you can prequalify using a soft credit check. Then you can compare rates, repayment plans, and customer service offerings before making a decision.
After you accept the loan terms, Marcus will transfer the funds to your bank account or pay your creditors directly, making it easier than ever to consolidate high-interest bills. You can pay off your loans as quickly as you want, too, without running into any prepayment penalties.
- Loan Amounts: $3,500 to $40,000
- 6.99% to 19.99%
- Minimum Credit Score: 660
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How Can I Get A Debt Consolidation Loan
Getting a debt consolidation loan is a fairly straightforward process, if you meet the lenders requirements.
Comparison shop. First, youll want to comparison-shop to find the best rates and loan terms. Credible is a great place to start, since it lets you see multiple lenders and get details about their loan products in one place.
Prequalify. You can often prequalify with many lenders, especially if you go through a platform like Credible. Prequalifying allows you to compare rates and get an idea of your likelihood of approval, with just a soft credit check and no commitment.
Apply. Once youve picked a lender and prequalified, its time to apply. Youll need to provide personal information, such as your Social Security number, address, date of birth, email, and income. The lender will usually conduct a hard credit check at this time, and youll be given a final decision.
Close. Now, its time to close on your new loan. Your lender will send over closing documents that outline your loan amount, interest rate, repayment terms, and any applicable fees. Once your loan documents are signed, your funds will be disbursed . Funding times will vary, but you may be able to receive your loan funds in as little as one business day or, in some cases, the same day.
Payoff: Best For Consolidating Credit Card Debt
More than likely, you’re reading this guide because you want to consolidate your credit card debt and restore a good credit score. If so, then Payoff may be the best lender for you.
Payoff’s online personal loan service offers funding to borrowers who need to pay off their credit cards. In fact, credit card consolidation loans are the only type of financing that Payoff provides. That means you can’t use your loan to pay for medical expenses, large purchases, vacations, or student loans.
The company offers highly competitive rates and an accessible platform for users with fair to excellent credit. You can prequalify for your loan with a soft credit check, then receive approval and funding within two days. After accepting your funds, you can adjust your payment due date once every year to suit your monthly finances.
Payoff will make direct payments to creditors on your behalf. Rather than transferring funds to your bank account and paying off multiple credit cards yourself, the loan provider will repay your creditors automatically. Then, you’ll submit a single monthly payment to Payoff until the end of your two- to five-year repayment period.
You will have to pay an origination fee of between 0% and 5% when you register for Payoff. You won’t get hit with a prepayment penalty or late fees, though. The company allows you to pay your loan off as quickly as you want without additional charges and offers a grace period for missed payments.
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Types Of Debt Consolidation Programs
There are three forms of debt consolidation programs:
The first two are aimed at consumers who have enough income to handle their debt, but need help organizing a budget and sticking to it.
The third debt settlement is used in desperate situations where the debt has reached unmanageable levels.
If youre not sure which is the best way to consolidate debt, call a nonprofit credit counseling agency like InCharge Debt Solutions. A certified counselor will go through your income and expenses, help you create an affordable monthly budget, then offer free advice on which consolidation program will eliminate your debt.
Credit Counseling will develop an action plan that is tailored to your exact needs, Rebecca Steele, Chief Executive Officer for the National Federation of Credit Counseling, said. When youre in debt, you need to understand your budget, what its going to take to resolve your debts and how you can put fair, affordable payments in place to achieve that goal. That is what credit counselors should do for you.
What To Know Before Applying
Look up the following numbers to help you decide which lender to go with or if debt consolidation is a good idea.
- Payoff amount. Reach out to your creditors and ask about the payoff amount, or how much you will owe if you paid off your balance by a specific date. This tells you how much you need to borrow.
- Total annual income. Include government benefits, income from investments, alimony and child support lenders consider this when calculating
- Check your credit score based on a soft credit pull so you can find a lender that you can qualify with.
- Current interest rates. If you dont know if off hand, look up the interest rates youre paying on your current accounts and aim for a loan thats less expensive.
- Monthly budget. Calculate how much money you have coming in and how much you typically spend to see how much you can afford to repay each month.
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What Is The Best Way To Consolidate With Bad Credit
When you have bad credit, a loan is often not the best way to consolidate your debt. Not only is it more difficult to qualify for loans when you have a lower credit rating, but any loans you do get approved for will be more expensive. This can defeat the point of consolidating in the first place and even end up making things worse.
Rather than borrow more money, the best way to consolidate with bad credit is to consolidate your debt payments, not the loans themselves. Its an option many Canadians dont know much about. Consolidating your payments can be done by starting a debt management program with a non-profit credit counselling organization like us. You make 1 monthly payment to the non-profit, who then distributes that payment to the creditors you owe money to. The non-profit will negotiate with creditors to bring down your interest rates, basically giving you the benefits of a debt consolidation loan without the risks of borrowing more money. A professional credit counsellor will also advise you and help you stay on track to reach your financial goals.
What Types Of Debt Can I Consolidate
Generally, you can consolidate any unsecured debts. Here are some of the most common types of debt to consolidate:
- Payday loans
- Lines of credit
The one type of unsecured debt you generally shouldnt consolidate with a personal loan is student loans. This is because student loans typically have low interest rates and generous repayment terms.
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Here’s How A Discover Personal Loan Can Help You Consolidate Debt And Save
Lower your interest rate
Rates from 5.99% to 24.99% APR can help you save on interest.
Make one fixed payment a month
Pay off creditors directly
Rates from 5.99% to 24.99% APR can help you save on interest.
The debt consolidation calculator totals up the debts you input and, using your average interest on that debt, estimates how long it would take to pay it all off if you continue to simply make your current monthly payments. It also estimates how much you’d spend on interest if you continued to pay down your debt in this way.
Then, the calculator also estimates your pay-down time and total interest paid if you were to get a debt consolidation loan with the estimated rate shown for the calculation.
This helps you compare your current situation to what might happen if you consolidated your debt. Your rate may vary based on the information contained within your application. These numbers are for comparison purposes only.
With a debt consolidation loan, you can get a lump sum to pay off your higher-interest balances from credit cards, medical bills, and more. You can have funds sent directly to your creditors, making it easy to consolidate your debt.
With a debt consolidation loan, you can also simplify and save by consolidating multiple higher-rate payments into one fixed payment. Learn more about strategies to pay down debt.