Best Debt Consolidation Loans in September 2023

Managing many debts at once can be confusing and stressful. Debt consolidation is like putting all your debts into one basket. Instead of dealing with many small debts, you deal with just one. A popular way to do this is by using a personal loan. Basically, you get a new loan, use it to pay off all your smaller debts, and then just focus on paying off that one new loan. It can simplify things and save you money if the new loan has a lower interest rate.

Navigating the world of debt consolidation can seem daunting, but having the right information can make a world of difference. In the article below, we've highlighted the best personal loans specifically designed for debt consolidation. Not only that, but we've also included essential insights and considerations to arm you with the knowledge you need. This will help you decide whether consolidating your debt is the right move for you.

Various lenders have distinguished themselves this year by offering outstanding debt consolidation loan options. These lenders have been recognized for their competitive interest rates, flexible repayment terms, and commendable customer service. Below, we've curated a list of the top performers aimed at helping you simplify your finances and reduce the overall cost of your debt.

Debt consolidation is a way to combine some or all debts into one new credit line. This way, your debts are contained in a single monthly payment instead of multiple bills.

While debt consolidation doesn’t erase your debts, it can help lower your overall interest rate and monthly payment and make it easier to pay off credit cards, medical debt or other unsecured debts. A personal loan is one way of consolidating debts.

MoneyGeek evaluated different lenders using more than 35 individual data points to determine the best personal loan lenders for debt consolidation. Based on our analysis, Lightstream is the top option for borrowers who need a debt consolidation personal loan.

Juggling multiple debts can be overwhelming. Debt consolidation personal loans provide a means to streamline your financial responsibilities, offering numerous advantages:

Single Monthly Payment: Imagine you're juggling payments for three credit cards, due on the 5th, 15th, and 25th of every month. Now, consider the simplicity of having just one payment due on the 10th of every month. By consolidating, you replace multiple payments with one, minimizing the chances of accidentally missing a date.

Potential for Lower Interest Rates: Let's assume you have a credit card with a 20% interest rate and another with 23%. If you secure a debt consolidation loan with an interest rate of 15%, you could save substantially on interest payments over time. Essentially, you'd be getting a discount on your debt.

Improved Credit Score Over Time: Imagine in the past, with multiple debts, you occasionally missed payments simply because it was too much to track. After consolidating, you're more consistent with only one payment to manage. Over months, this consistency and your decreasing debt balance could give your credit score a noticeable lift.

Simplified Financial Management: Picture your finances as a dashboard. Previously, with several debts, it looked cluttered with various readings to track. Now, with only one debt, everything is clearer. Instead of spending hours reviewing statements from different creditors, you could spend just a few minutes on one, leaving more time for things you love.

Debt consolidation personal loans can be a lifesaver for many, but like all financial tools, they come with their own set of potential pitfalls. Being aware of these can help you navigate them more efficiently:

Possibility of Higher Interest Rates: Lenders might view you as a riskier borrower if you have a tarnished credit history. As a result, they might offer you higher interest rates. For example, while someone with excellent credit might get an offer at 10%, you might be looking at rates of 20% or higher if you have bad credit.

Risk of Accumulating More Debt: If you use a debt consolidation loan to pay off credit cards but then rack up balances on those cards again, you'll find yourself in deeper financial trouble. Imagine paying off three credit cards only to fill them up again. Now, you'd have those card payments plus the loan payment.

Losing Collateral on Secured Loans: Some debt consolidation loans are secured, requiring an asset (like your home) as collateral. If you default on the loan, you risk losing that asset. For instance, the lender might repossess your vehicle if you took a loan against your car and can't keep up with payments.

Unexpected Fees: Always read the fine print. Some lenders might have origination fees, early repayment charges, or late payment penalties. Let's say you took a $10,000 loan with a 3% origination fee; that's $300.

Having many kinds of debts can be confusing. Debt consolidation can help by putting them all together, making things simpler. Below is a table that lists common types of debts and some things to consider if you consider consolidating them.

Your Credit Score: Think of your credit score as your financial reputation. A higher score (e.g., above 700) shows lenders you're trustworthy, which could get you better loan offers with lower interest rates. But if your score is lower, you might face higher interest rates or stricter terms.

While debt consolidation personal loans are a popular option for many individuals looking to manage their debts, it's essential to recognize that they're not the only solution available. Other alternatives might be more suitable or appealing depending on your financial situation, goals, and personal preferences. In the list below, we delve into various options to help you make an informed decision.

Balance Transfer Credit Cards: These cards often offer an introductory period (e.g., 12 or 18 months) with low or 0% interest. Transferring your high-interest debt to such a card can save you on interest, but be cautious of rates after the promotional period ends.

Home Equity Loans or Lines of Credit: By borrowing against the equity in your home, you can often secure lower interest rates. However, since your home is collateral, failing to repay can lead to foreclosure.

Debt Settlement or Management Programs: A third party negotiates with your creditors to reduce your debt or change repayment terms. This can reduce your debt load but negatively impact your credit score.

Bankruptcy: This should be considered only when other avenues are exhausted. Bankruptcy can offer a fresh start, but it has significant implications for your credit.

401(k) Loan: Some people opt to borrow from their 401(k) retirement accounts. This can have lower interest rates and no credit checks, but you must be aware of potential penalties, taxes, and the impact on your retirement savings.

Peer-to-Peer (P2P) Lending: Platforms like LendingClub or Prosper allow direct individual lending. While borrowers sometimes get lower rates than traditional loans, credit scores are still a factor.

Credit Counseling: A credit counselor can offer guidance, establish a debt management plan, and negotiate with creditors, providing a structured way to tackle debt.

Personal Savings: Using personal savings to pay down high-interest debt can be smart, but it's crucial to retain an emergency fund and keep all savings.

Negotiate Directly with Creditors: Communicating with your creditors might secure reduced interest rates or better repayment terms, simplifying your debt management without additional loans.

We reviewed over 30 personal loan lenders using 35+ individual data points across six key categories: loan affordability, accessibility, consumer friendliness, customer service, flexibility and lender transparency.

Within each ranking criteria category, we considered several data points that carry the most weight when choosing a personal loan lender for debt consolidation. These factors include APR ranges, available loan amount, minimum credit score, minimum income amount, application fees and disbursement time.

Here at MoneyGeek, we value you — the consumer — so we also factor in each lender’s customer support, business ratings and additional features that could make your experience easier and more accessible — like prequalification, payment options and mobile apps.

After careful consideration and calculation, our picks are chosen with your best interest in mind. Our personal loan recommendations and expert tips are meant to help you make the best decision when choosing a lender to consolidate your debts and meet your needs.