The Best Debt Consolidation Loans of 2018

Manage debt with a debt consolidation loan to lower your interest and save on monthly payments.

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By U.S. News Staff | Jan. 23, 2018, at 8:00 a.m.

Debt consolidation loans are used to pay off and simplify existing debt by consolidating multiple payments and accounts into a single account with one lender and payment. They are a specific type of personal loan.

Depending on your creditworthiness, you may be able to receive a lower interest rate on a debt consolidation loan than you are currently paying on your debt, saving you money on monthly payments and overall interest. Another option for lowering your monthly payment is with a long loan term. However, a longer loan term means you may pay more interest total.

Typically, debt consolidation loans can be used for unsecured debt. Common types of debt that a debt consolidation loan can be used for include:

  • Credit cards
  • Medical bills
  • Personal loans
  • Payday loans

This guide explains how debt consolidation loans work, how you can apply for and receive a debt consolidation loan and recommendations for the best debt consolidation loan companies.

How Debt Consolidation Loans Work

There are two types of debt consolidation loans: secured and unsecured. The primary difference between the two is that secured debt consolidation loans use collateral, while unsecured loans do not. Unsecured loans are more common, but you can use a secured loan for unsecured debt, such as a home equity loan used for credit card debt consolidation.

Secured debt consolidation loans. Secured debt consolidation loans are typically available at brick-and-mortar financial institutions, including banks and credit unions. They use collateral, such as home equity used to secure a home equity loan, and generally have better interest rates than unsecured ones. If you have the collateral and can meet the requirements, a secured loan may save you money on interest as you pay down your debt.

Home equity debt consolidation loans, a type of secured debt consolidation loan, offer a fixed interest rate. Interest paid on a home equity loan is usually tax deductible, while credit card interest is not. However, home equity loans for debt consolidation can be risky, as your home may be foreclosed on if you can’t pay your loan. “The danger is if you eat up a significant part of your home equity,” says Gerri Detweiler, education director of business credit website Nav.com. “Make sure you have plenty of cushion in there so if something happens and you had to sell your home, or you had to move ... you don’t end up losing your home.”

Repayment terms can be 10 years or longer, and if the value of your home drops during that period, you may owe more than your home is worth. If you’re facing bankruptcy, credit card debt is unsecured and typically discharged more easily than a home equity loan.

Unsecured debt consolidation loans. Unsecured debt consolidation loans don’t require collateral, and they usually have easier approval requirements than secured debt consolidation loans. Unsecured debt consolidation loans can have income requirements as low as $24,000 annually, debt-to-income ratios of up to 50 percent and minimum FICO credit scores as low as 600.

Unsecured debt consolidation loans are offered online through banks and marketplace lenders. This makes applying for a loan convenient, and some providers offer instant approval online, so you can find out right away if a loan is going to work for you.

While unsecured debt consolidation loans can be easier to obtain and more convenient than secured debt consolidation loans, they generally have higher interest rates, so they are more expensive to pay down than a secured debt consolidation loan.

Advantages of a Debt Consolidation Loan

Debt consolidation loans can be a good idea for many consumers, saving you money on interest and monthly payments, and potentially increasing your credit score.

  • Interest savings: If you have multiple sources of debt with high annual percentage rates, you can save on total interest if you get a debt consolidation loan with a lower rate. For example, if you consolidate two credit card balances with APRs of 16.24 and 23.99 percent into a debt consolidation loan with a 15 percent APR, you will save on interest. “Rates can be considerably lower than credit card interest rates, so you’ll save money in interest fees,” says credit expert John Ulzheimer, formerly of Equifax and Experian. “Second, loans have a finite amortization period, generally not longer than a few years. You can’t say the same about credit cards.”
  • Lower monthly payment: A debt consolidation loan can help you avoid missed payments and defaulting on issuer agreements, even if you need to choose a longer term length. With a debt consolidation loan that lowers your monthly payments, but not your interest, you will pay more in total but have payments that are easier to handle. That way, you’re less likely to be subject to additional fees and penalty APRs that come with missing a payment.
  • Improved credit score: Your credit score may increase with a debt consolidation loan, Ulzheimer notes. “You’ll be converting score damaging revolving debt into practically benign installment debt. As long as you don’t charge up your cards again you’ll be happy with your new scores.” By taking out a new loan and leaving consolidated accounts open but unused, you will have more total credit available. This results in a lower credit utilization rate, which can increase your credit score.

Disadvantages of a Debt Consolidation Loan

Debt consolidation loans aren’t a good idea for every consumer. In some situations, interest may be higher.

  • More interest: A debt consolidation loan can lower your monthly payments, but you may pay more interest in total over the life of the loan.
  • Asset risk: With a secured debt consolidation loan, you will put your house, car, retirement fund or other assets at risk. You could lose your home and other property if you’re not able to pay your loan.
  • Opportunity for more debt: When you move debt out of credit card and other accounts into a debt consolidation loan, you may be tempted to make new charges on your old accounts before you’ve paid off the loan, creating new debt.

Before You Apply for a Debt Consolidation Loan

Getting a debt consolidation loan is a major financial decision and one that shouldn’t be taken lightly. Before you apply for a debt consolidation loan, you should consider alternatives, figure out how you’ll make payments and make sure you’re finding the best rate available.

1. Consider alternatives. You may pay less in interest with debt consolidation loan alternatives.

Credit cards with zero percent APR on balance transfer offers allow you to transfer existing credit card balances to that new card. For the length of the introductory period, you can make payments to reduce your balance without accruing interest.

Additionally, local credit unions may have lower-interest loans.

2. Set up a repayment plan and budget. It’s essential to have a plan for how you can make the new payments, especially if you’ve previously struggled to keep up with minimum payments on your balances. To avoid missed payments, penalties or default, you’ll need to create a budget that allows you to make payments on your debt consolidation loan.

Assess your current debt total by listing out your debts, including credit cards, student loans, car loans and any other accounts. Track your spending to see where your money goes each month, identifying areas where you may be able to cut back. Compare your debt payment obligations and your spending to create a budget and determine how much you can realistically pay on your debt each month.

Once you know how much you can realistically allocate to paying down your debt each month, you can use the amount to determine terms for your loan. The amount you pay on your debt consolidation loan each month will vary depending on the amount you borrow and how many years you will take to repay it.

3. Shop around for the best quote. You should compare at least a few different lenders for your debt consolidation loan to ensure you’re getting the best interest rate and terms you can qualify for.

Most lenders offer rate quotes, which are soft inquiries on your credit and have no effect on your credit score. When you do a hard inquiry during the final approval process, it will be reflected on your credit report. However, if you have multiple hard inquiries within a 45-day period, it’s considered rate shopping and will only count as a single credit inquiry.

4. Avoid scams. Although debt consolidation loans are a legitimate solution for eliminating debt, some other debt consolidation options are scams. It’s best to stick with trusted, well-established lenders such as the ones recommended on our list.

When shopping for a debt consolidation loan, you should watch out for red flags including aggressive sales representatives, guaranteed approvals and quick-fix promises, as well as requirements such as upfront payments before loan approval or access to bank accounts for automatic withdrawals. “No lender should charge you upfront before you get the loan … and you certainly shouldn’t send money with a wire transfer or prepaid card,” Detweiler cautions.

5. Make a plan to avoid new debt. A debt consolidation loan can wipe the slate clean and allow you to start fresh with zero balances on credit cards and other credit commitments. Although it may be tempting, avoid using your newly cleared accounts to shop or manage household expenses. You don’t want to create new debt that you’ll have to pay on top of your debt consolidation loan.

How to Get a Debt Consolidation Loan

You will go through several steps to apply for and receive a debt consolidation loan. This includes applying (with prequalification), choosing your loan terms, finalizing your application with a hard inquiry and finally, repaying the loan.

1. Apply. The first step of the application process is typically a preapproval. This is a soft inquiry on your credit that produces a rate quote. Most lenders have requirements including:

  • Debt-to-income ratio of 50 percent or less
  • At least fair or good credit, which is a FICO score of 580 to 739. For the best interest rates, a higher score is recommended.
  • Clean credit history, free of bankruptcy, tax liens, repossessions or foreclosures
  • Proof of identification

Your credit history will significantly influence the interest rate quoted for your debt consolidation loan, as most lenders use risk-based pricing. With very good or excellent credit (a FICO credit score of 740 or higher), you will be in a better position to qualify for the lowest interest rate offered by a lender. With a lower credit score, you are a higher risk and will be offered a higher interest rate.

2. Choose your loan terms. Your loan terms determine how much you will borrow and how long you will take to pay it back. Typical loan amounts range from $1,000 to $50,000, depending on your creditworthiness. Loan lengths are usually between two to five years. You will confirm your interest rate and any origination fees (typically 1 to 5 percent) associated with the loan.

3. Finalize your application. When you finalize your application, you confirm the details of the loan and verify your identity, income and other qualifying information. The lender will pull your credit report to verify creditworthiness, which will result in a hard inquiry on your credit.

4. Get approved and close. Once approved, you will go through the closing process and disbursement of funds. Most debt consolidation loans offer wire transfers for funds, but some can pay creditors directly or send a check for bank deposit.

5. Repay. After you receive funds, you will begin repaying the loan according to the terms set forth in the agreement.

Choosing a Debt Consolidation Loan Company

Lenders have different options and requirements that can make a difference in the cost of your loan, how easy it is to get approved, and restrictions and other important details.

Lender Features

When choosing a debt consolidation loan company, evaluate companies based on these features to find the best fit:

  • Type of lending company
  • Interest rates
  • Loan and refinancing terms
  • Fees and penalties
  • Repayment options
  • Additional features such as hardship options

Type of lending company. Debt consolidation loans are offered by private banks and peer-to-peer marketplace lenders. Traditional banks are typically more well-established but can have higher qualification requirements and costs. Often, traditional banks require a minimum FICO credit score of 600. Some have prepayment penalties and a 1 to 5 percent origination fee. It’s a good idea to look for lenders that offer no prepayment penalties or origination fees.

Peer-to-peer marketplace lenders, such as LendingClub, Prosper, Upstart and Peerform, connect individuals with money to lend with applicants who need a loan. They typically offer more flexible lending options and have lower requirements for approval. Often, they have some of the lowest starting APRs available. However, they also have some of the highest APRs.

Interest rate type. Most lenders offer debt consolidation loans with a fixed APR, while others offer both fixed- and variable-rate loans. With a fixed-rate loan, your interest rate does not change during the life of the loan. You will pay the same amount each month and can calculate the total interest paid over the life of the loan.

A variable-rate loan has an interest rate that changes over time. They are typically tied to the U.S. prime rate, which is a foundation rate for loan products used by American lenders. With a variable-rate loan, you may have a lower starting interest rate, but your rate and payment amount can change over time when there are changes to the U.S. prime rate. Some variable-rate loans have a cap, which puts a limit on the maximum interest rate. Variable-rate loans often have lower starting interest rates, although that is not always the case.

With most lenders, you are able to complete a preapproval to check your rate based on your creditworthiness. A preapproval only triggers a soft inquiry on your credit. With preapprovals, you are able to shop around and find the best rate available without hurting your credit. Once you’re ready to close, the lender will complete a hard pull, but some lenders require a hard pull simply to find out what rate you will qualify for.

Loan and refinancing terms. Loan and refinancing terms will vary depending on the lender, with terms including the minimum and maximum loan amount, minimum and maximum loan period, restrictions, how long it takes to receive funds and how they are distributed.

Minimum loan amounts are the smallest amount a lender will offer, so your loan must be this amount or larger. They range from $1,000 to $5,000. The opposite is true for the maximum loan amount, which is the most a lender will offer, ranging from $20,000 to $100,000.

The minimum loan period is the shortest amount of time lenders will allow you to pay off your loan, ranging from one year to three years. Maximum loan periods are the longest amount of time you can pay off your loan, ranging from three years to seven years.

Lenders may place restrictions on what the loan can be used for. For example, some lenders only allow debt consolidation loans to be used on credit card debt or student loans, and some do not allow loans for college or business expenses.

Disbursement options and the time to receive funds varies by lender. Often, lenders will wire the funds to you, but some have other options, including paying lenders directly, depositing funds into a bank account or mailing you a check. Funds can be sent as fast as the same day or as long as two weeks after approval.

Some lenders offer special discounts, such as an autopay interest discount. An autopay interest discount offers a percentage off your APR when you sign up to make automatic payments each month. For example, some lenders have an autopay discount of 0.25 percent.

Fees and penalties. Fees and penalties can add up quickly and significantly increase the cost of your loan, making it more difficult to pay off your debt quickly. These include origination, prepayment, late and other fees.

Origination fees are charged by lenders for processing the loan. Some debt consolidation lenders have no origination fees, including Lightstream, SoFi and Earnest. Others have fees ranging from 0.99 to 5.99 percent of the total loan.

When you pay off a loan early, you’ll save on interest. That’s good news for you, but bad news for the lender, as they lose out on the interest you would have paid if you continued to pay your loan on schedule. Some lenders offset this cost with a prepayment penalty fee. This fee is usually a percentage of the remaining balance, or the interest charged for a certain number of months.

Late fees will typically apply when you make a late payment. Sometimes, lenders allow a grace period before they charge a late fee. Typical late fees range from $15 to $39. Some debt consolidation lenders do not impose late fees.

You may be subject to other fees with a debt consolidation loan, including a returned payment fee or check processing fee. Lenders often charge a $15 fee for returned payments and up to $15 for check processing.

Repayment options. Lenders typically offer multiple payment options, including autopay, online, check and phone payments. Some lenders allow you to change your payment date so that you can make your payment when it works best for you.

Additional features. Additional features offered by debt consolidation lenders may include free FICO credit score updates, budgeting and spending tracking tools, the ability to roll the origination fee into the loan, and unemployment protection, which allows you to postpone payments if you lose your job.

Lender Approval Requirements

In addition to lender features, you should evaluate the approval requirements to make sure it’s a good fit for your financial situation and determine how likely it is that you’ll be approved for a debt consolidation loan.

Important factors to consider include:

  • Type of lending company
  • Credit history and general qualifications
  • Employment requirements

Credit History and General Qualifications

Both banks and peer-to-peer marketplace lenders have credit and other general qualification requirements. Although some of these requirements are not disclosed by every lender, it’s a good idea to research and compare this information when it’s available.

Each lender typically has a minimum credit score for borrowers. Some will accept FICO credit scores as low as 600, but others require a minimum credit score of 640 to 660. It’s a good idea to research average credit scores to see if you’re within the normal range for the lender.

A lender’s maximum debt-to-income ratio is the amount of your monthly debt payments divided by your gross monthly income. Lenders use this figure to determine your ability to make loan payments each month. Some debt consolidation lenders allow a debt-to-income ratio as high as 50 percent, meaning your monthly debt obligations should add up to 50 percent or less of your gross monthly income. Others recommend little revolving credit.

Lenders typically have a minimum credit history, such as at least three years of good credit and two open accounts. Most require that you have no current delinquencies, tax liens, bankruptcies, foreclosures or repossessions.

Some lenders do not operate in every state. You should verify that lenders serve customers in your state before applying.

Co-signers or joint applications are offered by some, but not all, debt consolidation lenders. Co-signers reduce the risk for lenders, as they are required to pay the loan if you don’t. With a co-signer option, you may be able to qualify for a loan that you wouldn’t be able to get on your own, potentially with better terms. However, if you default on a loan with a co-signer, you may damage their credit as well as your relationship.

Some lenders have additional eligibility qualifications. For example, Earnest offers merit-based rates that take your professional experience and other factors into consideration. Upstart considers your education, area of study and job history when making lending decisions.

Employment Requirements

Lenders want to know that you have the income needed to make loan payments, so they require employment information. When evaluating lenders, consider the minimum income and employment eligibility requirements, as well as their average borrower income.

Some lenders have a minimum gross income as low as $24,000. Most do not disclose the minimum income requirement or average borrower income. However, they typically require a stable source of income that is sufficient to pay the loan.

Best Debt Consolidation Loan Companies of 2018

U.S. News examined lenders that offer personal loans for consolidating existing debt. The research was based on each company’s eligibility requirements, loan terms, fees, repayment methods and additional features. U.S. News limited the analysis to lenders with an online application that offer loans in most of the U.S. so the lenders profiled are accessible to most consumers.

Each consumer has different needs, and many lenders offer specializations designed to meet them. The list identifies the best debt consolidation loan company based on factors such as eligibility, interest rates and various useful features. You can use this to find the best fit for your specific credit background and needs.

  • Best for very good credit, low APR and no origination fees: SoFi
  • Best for good credit with merit-based qualifications and flexible payment dates: Upstart
  • Best for good credit and high debt-to-income ratio: Prosper
  • Best for fair to good credit with a co-signer option: LendingClub
  • Best bank for fair to good credit: Avant
  • Best marketplace for fair to good credit: Peerform

Top Lender for Very Good Credit, Low APR and No Origination Fees



Top Lender for Good Credit With Merit-Based Qualifications and Flexible Payment Dates



Top Lender for Good Credit and High Debt-to-Income Ratio



Top Lender for Fair to Good Credit With a Co-Signer Option



Top Lender for Fair to Good Credit



Top Marketplace Lender for Fair to Good Credit



Comparison Table of Top Companies


Minimum credit score
Loan amounts
Loan periods
Origination fee
SoFi
660
$5,000 to $100,000
Three to seven years
None
Upstart
620
$1,000 to $50,000
Three to five years
1 to 6 percent
Prosper
640
$2,000 to $35,000
Three to five years
1 to 5 percent
LendingClub
600
$1,000 to $40,000
Three to five years
1 to 6 percent
Avant
600
$1,000 to $35,000
Two to five years
1.5 to 3.75 percent
Peerform
600
$1,000 to $25,000
Three years
1 to 5 percent


Additional Lenders Included in the Research


Minimum credit score
Loan amounts
Loan periods
Origination fee
Lightstream
680
$5,000 to $100,000
Two to seven years
None
Earnest
Not disclosed
$2,000 to $50,000
One to three years
None
LendingPoint
600
$3,500 to $20,000
Two to four years
Up to 5 percent depending on residency
Discover
Not disclosed
$2,500 to $35,000
Three to seven years
Not disclosed
Rocketloans
640
$2,000 to $35,000
Three to five years
1 to 6 percent
Payoff
660
$5,000 to $35,000
Two to five years
2 to 5 percent
Best Egg
Not disclosed
$2,000 to $50,000
Three to five years
0.99 to 5.99 percent

Alternatives to Debt Consolidation Loans

Debt consolidation loans are a good option for many people with debt, but they aren’t the only option. Debt consolidation comes in many forms, and it means different things to different people, says Detweiler.

There may be more attractive alternatives if you can’t qualify for a personal loan with good terms. If you qualify for a debt consolidation loan with bad credit, Detweiler explains, they are probably going to be higher-cost loans, and they may not make financial sense to consolidate. Detweiler says that zero percent APR credit card offers can be a good choice, and that consumers should also look at consolidating just part of their debt instead. While most people want to consolidate all their debt into a single payment, sometimes you have to start by consolidating the highest-rate debt, she advises, and consolidate remaining debts after you pay that off.

Credit counselors can advise you on the best solution for your personal financial situation, and debt management and debt settlement are options, but they can be risky.

Apply for a Credit Card With a Zero Percent APR Balance Transfer Introductory Offer

Credit cards with zero percent APR balance transfer introductory offers allow you to transfer existing debt at a zero percent APR for a certain period of time, usually 12 to 21 months. They typically allow credit card debt transfers, but some allow transfers of other types of debt. With a zero percent APR balance transfer offer, you will get time to pay down or pay off your debt without accumulating any new interest.

If you’re using a zero percent APR balance transfer offer to pay down balances, you should avoid making new charges on the card. Doing so will allow you to pay down your existing balance, not new charges, when you make payments on the card. It’s best to make a plan to pay down the full balance before the introductory period expires, as any remaining balance will be subject to the card’s regular APR after the introductory period. You should avoid missing payments, as doing so can trigger a penalty APR and loss of your zero percent introductory APR.

Learn more about zero percent APR balance transfer cards with the U.S. News Best Low-Interest Credit Cards guide.

Debt Relief Services

Debt relief services include credit counseling, debt management and debt settlement. These services can help you strategize how to pay off your debt, create payment plans with creditors or negotiate on your behalf to settle accounts for less than the full balance. While some debt relief services can be helpful, working with debt relief companies can be risky, as scams are common in this industry.

Credit counseling. Reputable credit counseling services are typically nonprofit, and may be affiliated with a university, military base, credit union or housing authority. Their services usually include counseling on money management, developing a budget and free education workshops to help you improve your entire financial situation.

Look for a credit counseling organization with:

  • Comprehensive services including budget counseling and classes
  • Low fees that are clearly spelled out in your agreement
  • Free information about what they offer without having to share details about your situation
  • Assurance that your personal and financial information will be kept confidential and secure
  • Licensing in your state
  • Qualified, accredited counselors

Debt management. Debt management is a service offered by credit counseling companies. Credit counseling services work with customers and creditors to create a plan for managing debt. With this plan, the agency negotiates to make paying down debt easier for the customer, usually by lowering interest rates or forgiving late fees. The credit counseling service will take payments from you and use your payments to pay off your debt according to the new schedule. For every payment you make, the credit counseling service receives a percentage from the creditor.

Credit counselors may charge expensive fees, and some creditors may refuse to work with the debt management plan. It’s generally a good idea to avoid credit counseling companies. Although debt management plans can be helpful for some consumers, they shouldn’t be the first choice. Be wary of a credit counseling service that offers a debt management plan as your first option, especially if they haven’t completed a thorough review of your financial situation.

Debt settlement. Debt settlement is another risky debt relief service. Usually offered by for-profit companies, debt settlement companies negotiate with creditors to offer a settlement to end your debt. They may make promises to wipe out your debt for pennies on the dollar, but they are far more likely to make the situation with your creditors worse.

Debt settlement companies often charge expensive fees and may charge fees for using third party-dedicated bank accounts for debt payments. They may encourage you to stop paying your credit card bills so that creditors will negotiate with them. This is a bad idea, as it will result in late fees, penalty interest and other charges that will make your debt grow larger. When you stop making payments, your creditors are likely to step up collection efforts and may file a debt collection lawsuit against you.

Some creditors may refuse to work with the debt settlement company. Often, the debt settlement company will not be able to settle all of your debts. The penalties and fees of unsettled debts can easily negate any savings offered by debts settled by the company.

Debt settlement can have a negative impact on your credit score. Unlike accounts that are paid in full, accounts that are settled for less than the balance will remain on your credit report as a negative account. This can affect your ability to get credit in the future.

Avoiding debt relief scams. Debt relief services including credit counseling, debt management and debt settlement are regulated by the Federal Trade Commission and are subject to the Telemarketing Sales Rule, which means:

  • It’s illegal to charge upfront fees, so the debt relief services can’t collect fees before they have settled or resolved your debt.
  • They have to disclose details of their service. This includes how long it takes to get results, how much it will cost, information about dedicated accounts and the potential consequences of using the service.
  • They can’t misrepresent services, including making false or unsubstantiated claims about services.

Telemarketing Sales Rule violations are major red flags, but it’s also a good idea to avoid any debt relief services that:

  • Tell you to stop making payments or communicating with creditors
  • Promise a specific percentage reduction or payoffs for pennies on the dollar
  • Guarantee to make all of your debt go away
  • Promise to stop debt collection calls

Other Alternatives

Other alternatives to debt consolidation loans include bankruptcy and payday loans. While bankruptcy can be helpful in certain situations, payday loans are never a good idea.

Bankruptcy. If you are unable to pay your debts, you can file for bankruptcy. Under bankruptcy, debt may be discharged, or you will make a plan to pay off debts. Bankruptcy can be useful for out-of-control debt, but it comes with many consequences.

Bankruptcy will damage your credit and may remain on your credit report for up to 10 years. It is nearly impossible to get a mortgage after declaring bankruptcy. You will lose all of your credit cards, some or all of your luxury possessions and any property that is not exempt from sale. Bankruptcy does not relieve student debt or eliminate obligations to pay alimony or child support.

Declaring bankruptcy is a last resort, but it may make sense to do it in certain situations. If you have serious debt and are being sued by creditors or have a pending foreclosure or repossession, bankruptcy may be helpful.

Payday loans. Payday loans are typically short-term loans for $500 or less due on your next payday. Payday loans usually have extremely high interest rates, often a $15 per $100 fee that equates to an APR of almost 400 percent. They are exceptionally risky, high-cost loans that typically have interest rates far higher than existing credit card debt and terms that are too short to help consolidate and pay off debt.

Options for Students

If your debt is from student loans, you should consider student loan consolidation. Student loan consolidation allows you to combine multiple student loan payments into a single one. Under certain circumstances, such as extending your student loan term or reducing your interest rate, you can save money on student loan payments with student loan consolidation.

[Read: The Best Student Loan Consolidation Lenders of 2018]

There are two methods for student loan consolidation: federal and private.

With federal student loan consolidation, federal student loans are combined into one account. Private loans are not consolidated into the account. Federal student loan consolidation takes a weighted average of your current interest rates and combines them into a single payment with adjustable payment terms between 10 to 30 years. The process is free and may allow you to retain benefits including income-based repayment and public service loan forgiveness.

Private student loan consolidation refinances your student loans. You can combine federal and private loans into one payment. Unlike federal student loan consolidation, private student loan consolidation interest rates are not based on your current interest rates. Instead, your financial and credit history are used to determine your interest rate. If you’re able to reduce your interest rate, you can save money on your student loans with consolidation. With private student loan consolidation, federal student loan benefits no longer apply. However, some private student loan consolidation lenders have options for deferment and forbearance.

Options for Military Members

Military service members and veterans with debt have access to debt management options that can be more beneficial than regular debt consolidation loans. These include a cash-out home refinancing known as the Military Debt Consolidation Loan and consumer protections under the Servicemembers Civil Relief Act.

Military Debt Consolidation Loan

If you have a Veterans Affairs home loan, you may be eligible to take out a specialized loan to consolidate your debt known as the Military Debt Consolidation Loan. This home equity loan offers a cash-out option, which you can use to pay off debt.

An MDCL is good for veterans who have home equity and the ability to make a larger home loan payment each month to pay down debt. You will pay closing costs and increase your monthly payments.

However, you will lose some or all of your home equity with an MDCL. This loan can increase your financial risk, as it puts your home on the line to pay off debt. If you go into default on an MDCL, you risk foreclosure.

Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act passed in 2003 offers financial assistance and protection to active-duty service members. This act was passed to give service members the ability to focus on their job without concern for serious financial consequences. However, the benefits only apply during active duty, and there are some exceptions. SCRA benefits include:

  • Prevention of some adverse financial actions, including foreclosure, repossession and eviction
  • Ability to terminate leases for property and vehicles
  • Protection from health insurance termination
  • Postponement of scheduled court appearances
  • Cap of 6 percent interest on credit cards, mortgages and other loans

Options for Small Businesses

Small business owners can consolidate business debt using a personal loan. With a small business debt consolidation loan, you will take out a personal loan for debt consolidation and use it toward small business debt.

[Read: The Best Small Business Loans of 2018]

You will use your own personal credit history and information, so the debt will be on your credit, not the business. Using your credit history can be helpful in qualifying for the loan, as you may have a stronger credit history than your business. However, it puts your personal finances at risk, so a small business debt consolidation loan isn’t the right choice for every business owner.

Some lenders offer small business loans for debt consolidation. Eligibility depends on the financial health and credit history of your business. Although your business credit is considered for the loan, some lenders will consider your personal credit history as well.