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Debt Consolidation Loans: Best Companies & Personal Bad Credit Rates

Elizabeth Johnson

Financial Advisor
Updated: 07/2019

Debt Consolidation Loans

In This Article

Understanding Debt Consolidation Loans

Have you made some financial decisions in the past that you are reaping the consequences today? Perhaps you opened a few credit cards for the holidays or perhaps opened a line of credit for your wedding and now, your finding it difficult to manage the multiple credit cards, lines of credit, and other monthly bills? Well, before you are quick to throw in the towel, it’s important to know that you are not alone. Thousands of people are in the same exact situation you are in. In fact, this is where there are debt relief programs – to bring relief for those in debt.

With that being said, in today’s article, we are going to discuss one of the main debt relief programs that is available to consumers: debt consolidation. Not only will we explore the basics of debt consolidation, we will even provide share some tips and tricks to use when comparing debt consolidation loans and companies. By the end, you will be fully prepared to begin your own research.

What is Debt Consolidation?

In the debt relief field, there are many different forms of relief; debt consolidation happens to be one of the most popular. As the name may imply, debt consolidation is the process where an individual opens a loan with a debt consolidation company that is then utilized to pay off all of their unsecured debt, or credit card and even medical bills.

Debt consolidation is most often preferred by individuals with better than average credit score as they receive the maximum benefits from this debt relief program. We are talking about minimized interest rates, lower monthly payments, and eliminating debt in a quicker and more efficient manner.

Now, given the popularity of debt consolidation in the debt relief field, there are dozens upon dozens of different debt consolidation companies and loans. In light of this, it’s important to do thorough research and ask the right questions to ensure you select the best possible loan and company for you.

Questions to Consider When Comparing Debt Consolidation Loans

With a better understanding of what debt consolidation is, before you are quick to pick just any debt consolidation loan, it’s important to ask the right questions when comparing different debt consolidation loans. This is the only way that you, a consumer, can ensure that a debt consolidation company is truthful, genuine, and placing your best interests first. Otherwise, you might just find yourself in more debt, regretting choosing this debt relief program. With that being said, we have crafted a few questions to help guide you along the way.

Is your credit score high enough to be approved for a debt consolidation loan?

Before you are quick to exploring any debt consolidation company, it’s important to know whether your credit score is high enough to be approved for a debt consolidation loan. Typically, credit card companies should offer a free credit score, which may be used as a gauge. You would not want to apply for a debt consolidation and take the hard inquiry on your credit report, just to find out that you have been denied.

Some key characteristics that may hurt your chances of getting approved are: missed payments, late payments, or even multiple delinquencies. If your credit score is too low for debt consolidation loans, do not be discouraged. There are still other debt relief programs that may be suitable for you.

What is the specified introductory interest-rate and go-to interest rate?

Given the nature of this risky financial environment, it’s important to always take into consider the interest rates – both introductory and go-to. With debt consolidation loans, interest rates, in our opinion, are one of the biggest deciding factors. Reason being, the higher the interest rates, the longer the life expectancy of the loan, meaning more money out of your pocket.

If you have average credit and are approved for a debt consolidation loan, you may receive a higher interest rate because of your credit. This is why debt consolidation loans are best for individuals with good-to-excellent credit scores.

Are you enrolling in debt management rather than debt consolidation?

When we crafted this question, there was a special intention behind it. In this industry, companies tend to market themselves in a certain manner; however, they are actually a different type of company. For example, there have been many cases of debt consolidation loans being marketed under debt consolidation; however, the company was in fact a debt management company.

Take the time to investigate find the best debt management companies. Are they a credit counseling service? Are they only offering debt management plans? You should be able to clearly identify that the company is strictly for debt consolidation. If it’s not that easy to discover, or you are finding customer reviews highlighting this problem, remove the company from your list. 

What are your debt relief alternatives?

Before you are quick to claim debt consolidation as the best debt relief solution for you – have you taken the time to investigate the other debt relief alternatives? For example, for some individuals, credit counseling may be a better choice than debt consolidation loans. Reason being, these are often cheaper than opening an entire new loan. At the same time, perhaps debt management is a better alternative where you can learn more specifics about debt relief and eliminating debt from the experts.

A rule of thumb in the debt relief world is that individuals with a strong credit report and established credit score are better off with debt consolidation loans. However, as we have stated in multiple articles, debt consolidation is never a feasible option for secured loans, which includes your home. Please keep this in mind!

What is the loan’s term?

Another important question that you should ask when comparing different debt consolidation loans is what is a specific loan’s term? In other words, what is the debt consolidation offering for a repayment period? If a debt consolidation company is only offering long-term debt consolidation loans, it’s important to weigh the costs and benefits.

For example, a long-term loan could mean an extended loan life-expectancy and more money out of your pocket. With a short-term loan, an individual may capitalize on their new lower payments, if affordable, and eliminate their debt quicker. It truly depends on each individual case.

Is this company telling you the truth?

The trickiest question that stumbles many consumers is whether a debt consolidation company, or any debt relief company for this matter, is telling the whole truth. In fact, this is the biggest source of the negative connotations that surround the industry. It’s important to be able to weed out the scam artists and highlight the success and reputable companies.

Take the time to truly research the company, ask the important questions, and study their accreditations. Is the company available on search engines? Can you find their reputation on Better Business Bureau? Another clear indicator of a company that is money hungry or potentially a scam is if they charge upfront fees, before any agreement has been established. In the digital age, through proper research, it should not be too hard to weed out the dishonest companies.

Is this company promising a quick-fix solution?

The quickest way to eliminate an item from your list of potential debt consolidation loans is when companies are promising a quick-fix solution. This is one of the biggest false premises that surround the industry, and another major reason for the negative connotation that surrounds it.

The truth is that there is never a quick-fix to debt relief. The nature of these loans are risky as it is, so to say that there is a quick-fix, is false advertising. On top of this, if a company is guaranteeing you anything – this is another red-flag to remove from your list.

Do they have any hidden rates or charges?

Another great question to consider when comparing different debt consolidation loans is whether the companies are hiding any rate or charges in their contracts. One of the best ways to learn or disclose this information is by asking for a sample contract or reading reviews from previous consumers. Since hidden fees and charges are such a sensitive topic to consumers, its one of the first areas of concern that is highlighted in a review.

When cross-referencing a debt consolidation company, if you find that there are many reviews that talk about their hidden rates and fees, perhaps it’s time to move on to the next company. The last thing that you want when seeking debt relief is more debt-creating circumstances.

Are the monthly payments budget-friendly?

This is a question that will require you and any other consumer to be honest and truthful with themselves. Can you truly handle the estimated monthly payments? Now, in our opinion, prior to even beginning the process of comparing debt consolidation loans, consumers should take the time to evaluate their personal finances and establish a budget based on their current circumstances. In doing so, when it comes to comparing debt consolidation loans, consumers will know EXACTLY how much they can handle paying each month.

A rule of thumb from financial experts is that a debt consolidation loan should make your life easier. You should not feel stressed or struggle to make monthly payments for any of your bills, including priorities like groceries and gas.

How is the company’s customer service?

Another pertinent area to consider when comparing debt consolidation loans is how great a company’s customer service is. Now, through reviews themselves, you will be able to learn a lot about how great their customer service department is. However, we do also suggest taking the time to make a phone call to the company, visit a local branch, if possible, and even send an email to test the waters.

We also suggest gauging the company’s customer service innovation and see if they offer online support through live chat systems or perhaps mobile applications. During the testing process, if you encounter individuals who are rude or disrespectful, perhaps that debt consolidation company is not a great fit.

Do you receive a personal specialist for your case?

In the debt relief industry, there are dozens upon dozens of companies claiming their right to being the best debt relief company. However, only the best of the best companies will offer their clients personalized service through a personal specialist dedicated to helping with their specific case.

If you want to evaluate and compare any debt consolidation loan, see how the company caters to your specific needs. Do they have a specialist that you can continue 24/7? Are they ready and willing to answer any and all of your questions? Do you have wait several minutes for a customer service representative? These are all important considerations to make when comparing debt consolidation loans.

Get Debt Relief

Taking Debt Consolidation Loans Seriously

When it comes to taking control over and eliminating your debt, one of the best and most viable options that is available in the debt relief field for consumers is debt consolidation. It’s important to keep in mind that debt consolidation is most feasible for individuals with a strong credit report and established credit history. Furthermore, debt consolidation loans are something that should be taken seriously.

Typically, many people who have experienced faults or significant drawbacks do so because of the lack of research done. It’s essential to thoroughly research the many different debt consolidation companies that exist and the loans that they offer. Two such companies are National Debt Relief and Freedom Debt Relief. This is the only tried and proven way to ensure that your best interests are met. If you are truly passionate about eliminating debt and achieving financial freedom, then you will take extra precautions to ensure that whatever decision you make is financially sound.

 

FAQ

Debt affects every age group, country, and demographic. In the United States alone, over 81.95% of millennials are in debt. Whether it’s for buying a car, home, or paying for a college education, borrowing money and taking out loans gives us the opportunity to have luxuries we couldn’t afford otherwise. Unfortunately, some people take out so much debt that they can’t climb out of it. This is where debt consolidation comes into play.

In short, debt consolidation is when you take out one loan to pay off multiple outstanding debts. The hope is to obtain a lower interest rate and saving money in the long-run. We’ve compiled some of the most common questions about debt consolidation to cover the in’s and out’s of everything you need to know. 

How Debt Consolidation Loans Work

While debt consolidation loans share a common goal, there are many different types and various components that aren’t clear-cut. At the end of the day, debt consolidation loans don’t differ a ton from non-consolidation loans. The application process is similar, you pay interest, and so forth. The below questions will help you better understand not only how consolidation loans work, but what their purpose is. 

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How to get a debt consolidation loan?
You can get a debt consolidation loan by first reviewing your credit score to see if you would quality and then applying for the loan through a financial institution.
How does a debt consolidation loan work?
After getting a debt consolidation loan, you get a lump sum of money to pay off your existing debts. Instead of making multiple payments each month, you now just make one.
Is a debt consolidation loan a good idea?
Yes, a debt consolidation loan is a good idea provided you consistently make payments and don’t take on new forms of debt. If you aren’t disciplined, you might end up with more debt than you had before.
How to get a low interest debt consolidation loan?
Online lenders typically have lower interest rates because of their low overhead costs. Choosing an online lender vs. a brick-n-mortar counterpart could save you up to 1% in APR.
Can I get a loan to consolidate 300,000 debt?
Yes, it is possible to get a loan to consolidate $300,000 in debt. To get approved for this amount, your credit score, income, personal assets, and net worth should be in line with this amount.
What are the drawbacks of a debt consolidation loan?
A drawback of a debt consolidation loan is that it doesn’t eliminate your debt but rather just reorganizes it. In addition, there are some fees you’ll have to pay such as an origination charge when you take out the loan.
What is the interest rate on debt consolidation loans?
The interest rate on debt consolidation loans depends on your credit score and who you’re lending with. On average, the interest rate ranges from 6.89% for someone with good credit to 19.65% with bad credit.
How to consolidate debt into one loan?
You should review your credit score and fix any errors before applying for a loan. Then decide if you want a home equity loan, personal loan, or balance transfer credit card and apply for it online or in-person at a lending institution.
Are debt consolidation loans taxable?
No, debt consolidation loans are not taxable. If you take out a loan of $20,000 for example, it’s not considered income because you have the intentions of paying off debt with it.
Are personal loans good for debt consolidation?
Yes, personal loans are a good choice for debt consolidation provided that you have a decent credit score and can get a lower interest rate than what you’re paying on your outstanding debt.
Are debt consolidation loans good or bad?

Debt consolidation loans could be both good or bad. If you don’t make payments on the debt consolidation loan, it only makes your situation worse. On the other hand, you could end up saving a lot of money if you stay on top of payments. Read more about debt relief programs pros and cons.

Can car loans be included in debt consolidation?

Yes, you can include car loans in debt consolidation. Consolidating a car loan not only reduces your interest rate, but also lets you pay off the debt much quicker. Use a which debt to pay off first calculator to make this decision.

Obtaining a Debt Consolidation Loan

After you decide whether or not a consolidation loan is right for you financial situation, the next step is to apply for one. Hold up – it’s not quite as easy as it seems. From credit unions to peer-to-peer lending platforms, there are virtually tons of places you can go to get a consolidation loan. Each of these lenders have their own requirements and different interest rates. So where do you get a debt consolidation loan and how does the process work? Take a look at the below questions and you’ll get your answer.

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Where can I get a loan to consolidate my debt?

You can get a loan to consolidate your debt at banks, credit unions, and at other private lending companies. There are also a handful of other companies that provide consultation services instead actual lending.

How to get a debt consolidation loan with bad credit?

Nonprofit debt consolidation companies help individuals with bad credit secure loans. In addition, credit unions sometimes give loans to consumers with bad credit if they are loyal customers.

What is the best debt consolidation loan?

That depends on your financial standing and ability to make payments. If you’re financially stable, the best option would be a secured loan because they have lower interest rates.

Will I get approved for a debt consolidation loan?

You will only get approved for a debt consolidation loan if you meet the qualifications set forth by the lender. Banks look at your proof of income, credit history, equity, and financial stability.

How to get a low interest debt consolidation loan?

Online lenders typically have lower interest rates because of their low overhead costs. Choosing an online lender vs. a brick-n-mortar counterpart could save you up to 1% in APR.

Can you claim bankruptcy on a debt consolidation loan?

Yes, you can claim bankruptcy on a debt consolidation loan and discharge it because it falls under unsecured debt in a bankruptcy case, similar to credit card debt.

Can you refinance a debt consolidation loan?

Yes, you can refinance a debt consolidation loan by taking out another loan. Before doing this, it’s important to consider both the short-term costs (i.e. origination fees) and long-term costs (interest).

How to get approved for debt consolidation loan?

You need to carefully analyze your credit report before applying to increase your chances of getting approved. Moreover, you should also consider what type of loan is right for you (secured vs. unsecured) as this may increase your chances.

Can you pay off a debt consolidation loan early?

Yes, just like most loans, you can pay off a debt consolidation loan early. By paying more than the minimum payment each month, you’ll end up paying off the loan before the term ends and saving money on interest.

How to get a personal loan to consolidate debt?

Getting a personal loan to consolidate debt doesn’t differ much from getting a personal loan for any other reason. In fact, you go right to your local bank or credit union and apply for a consolidation loan in-person.

What is a good APR for debt consolidation loan?

A good APR depends on your credit score. A desirable APR for someone with a 720-credit score or higher would be 7% or less. Contrarily, a competitive APR for someone with poor credit (below 660) is 17%.

What is needed for a debt consolidation loan?

While the requirements vary by lender, you’ll usually need proof of a stable income, a decent credit score, and collateral if you go the secured loan route.

Are debt consolidation loans a bad idea?

No, debt consolidation loans are not a bad idea because they can help you pay off your existing debt quicker all while lowering your interest rates. It’s also a lot easier to manage one payment versus ten.

What type of loan can be used for debt consolidation?

The different types of loans you can use to consolidate debt include home equity, personal loans, credit card transfers, and loans specifically for debt consolidation.

Do you need collateral for a debt consolidation loan?

Yes and no. You only need collateral for a secured debt consolidation loan. Secured loans come with lower interest rates because they’re not as risky for the lender.

Who offers the best debt consolidation loans?

The best debt consolidation lender depends entirely on your financial situation and credit score. Nonprofit and military lenders are best for those with lower credit and traditional lenders may be better suited for those with fair or good credit.

Do banks offer debt consolidation loans?

Yes, both large and small banks offer debt consolidation loans. You can either take out a secured loan where you use an asset (i.e. your home) as collateral or an unsecured loan.

How to get a debt consolidation loan without collateral?

A debt consolidation loan without collateral is an unsecured loan. Unsecured loans are actually more common, and you can get them at banks and private lending companies. Keep in mind that interest is sometimes higher than secured loans.

How to qualify for a debt consolidation loan?

To qualify for a debt consolidation loan, you typically need a minimum FICO score of 600 and a debt-to-income ratio no greater than 50%. You’ll also need a stable income of at least $25,000 per year, depending on the amount you wish to take out.

Is a debt consolidation loan worth it?

Yes, a debt consolidation loan can certainly pay off in the long-term. Not only can you secure a lower APR, but it will also be easier to manage your debt payments and boost your credit score.

Your Credit Score’s Role in Debt Consolidation

Ah, your credit score – often the most dreaded component of the lending process. This financial metric consists of your payment history, credit utilization, new and old credit mix, and more. Just like getting any type of loan, your credit score can make or break the deal. Your credit score is crucial to getting a debt consolidation loan and it will also fluctuate afterward.

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Do debt consolidation loans affect your credit?

Yes, debt consolidation loans can both increase and decrease your credit. When you first apply for a consolidation loan, lenders make “hard pulls” that ding your score. Over time, your score will increase if you make timely payments because your debt-to-income ratio decreases.

How to get debt consolidation loan with poor credit?

Poor credit doesn’t mean you’re doomed. Investors on peer-to-peer lending platforms might give you chance despite your poor credit score. You can also use your home as collateral and apply for a home equity loan.

Is it easy to get a debt consolidation loan?

Yes and no. Anyone with a credit score above 650 won’t have much trouble getting a debt consolidation loan. If your credit score falls below this mark, you may be forced to pay a higher interest rate or use a personal asset as collateral.

Will a debt consolidation loan help my credit score?

Yes, debt consolidation loans do help your credit score because they reduce your debt-to-income ratio and also clear up delinquent debts that negatively impact your credit.

How hard is it to get a debt consolidation loan?

Whether or not it’s hard to get a debt consolidation loan depends on your income, financial history, credit score, and equity. Just like any other loan, the more risk you carry, the more difficult it will be to get a loan.

Can you get a debt consolidation loan with bad credit?

Yes, although it’s not a walk in the park. Avant is a popular lender that has a minimum credit score requirement of 580. If you’re a member of the military, Navy Federal also considers applications with lower scores.

How to get a debt consolidation loan with fair credit?

The best way to get a debt consolidation loan with fair credit (580 to 669) is to apply for a loan with a lender that has lower minimum credit score requirements – Goldman Sachs, Avant, and Prosper.

Do debt consolidation loans hurt your credit?

Debt consolidation loans may hurt your credit at the beginning because each time you apply for a loan, your credit score gets a “hard inquiry.” These inquiries account for 10% of your credit score.

Consolidating Student Loan and Credit Card Debt

More people across the globe are relying on debt than ever before. Unfortunately, sometimes you get so swamped in debt that it feels like you’re drowning and can’t escape. Some of the most common types of debt include student loan and credit card debt. The good news is, you can consolidate these forms of debt under consolidation debt. The below questions will give you an idea of how it works.

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Does debt consolidation include student loans?

Yes, debt consolidation does include student loans. This type of consolidation takes multiple student loans and merges them into one loan with fixed interest rate (the average of the loans being combined). Learn more about student loan debt consolidation.

What is the best way to consolidate student loan debt?

The best way to consolidate student debt is to take advantage of the U.S. Department of Education’s Direct Loan Consolidation program for a fixed rate loan that’s based off the weighted average of all your student debt.

Can you consolidate credit card debt with student loans?

No, student loans are not meant to pay off credit card debt. Student loans are intended only for direct education expenses or college-related living expenses such as your rent.

How to consolidate student loan debt?

To consolidate student loan debt, you typically need to be out of school before you are eligible. You can apply for a consolidation on the U.S. Department of Education’s Federal Student Aid website

Can you consolidate student loans and credit card debt?

Yes, you can consolidate both student loans and credit card debt. With your FSA ID in hand, you can apply directly for student loan consolidation. When it comes to credit card debt, the most common way to consolidate debt is to use a balance transfer card. 

What is the best loan to consolidate credit card debt

The best credit card consolidation loan is the ones that offers the most competitive interest rates and the lowest origination fees. Moreover, unsecured loans pose less of a risk for the borrower.

Should I consolidate credit card debt with a personal loan?

Yes, you should consolidate credit card debt with a personal loan if the interest rate is lower and if you can handle the origination fees that lenders charge. The best outcome is that’ll you get more time to pay off the debt and save on interest. Do your research first to determine if this is the best credit card debt relief option for you.

Debt Consolidation Loans and Your House

Even though your house is likely your biggest form of debt, you can leverage it to consolidate other types of debt through a home equity loan. In short, a home equity loan lets you borrow against the value of your home. This type of loan is considered a secure loan because the lender can repossess your house if you default on payments. Nonetheless, your home can be a powerful tool when you’re swamped in debt and need a way to streamline your payments.

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Should I refinance or home equity loan for debt consolidation?

Refinancing is a better option if you current interest rate is higher than the market average. On the other hand, a home equity loan provides cash fast and is a good choice if you can make timely payments.

Should I consolidate unsecured debt with a home equity loan?

It depends on your financial situation. Unlike a home equity loan, unsecured debt doesn’t put your assets at risk. If you can’t make payments on a home equity loan, the lender can claim your home. You should only consolidate the debt if you’re certain you can make the payments.

What is a home equity debt consolidation loan?

A home equity debt consolidation loan is a loan that lets you borrow against the value of your home. To illustrate, a bank would lend you a large sum of money that you then use to pay off your other outstanding debts.

Will debt consolidation affect my home loan?

Debt consolidation won’t affect your home unless you include your mortgage in the consolidation loan. It can also affect your home itself if you use it as collateral.

Can you use a home equity loan to consolidate debt?

Yes, you can use a home equity loan to consolidate debt. This type of loan lets you borrow an amount that’s usually no higher than your home’s value at a fixed interest rate.

Can you consolidate debt into a home loan?

Yes, you can consolidate debt through a home equity loan. This type of loan leverages your house as collateral and gives you a large sum of money to pay off other debts.

How to consolidate debt into home loan?

A popular technique to consolidate debt into a home loan is to do a cash-out refinance where you essentially use the equity you’ve built up into your home and turn it into liquid funds to pay off other debts.

Elizabeth Johnson


Elizabeth is an expert on Debt Consolidation as she provides helpful advice to people who are dealing with debt problems. She graduated college with a BS in Finance. After college, she took a job working at a non-profit debt counseling program. It was at this position where Elizabeth honed her expertise for helping people understand how different financial products work and finding ways to help people pay off their debts.

 

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