re you struggling to keep up with multiple debts from credit cards and loans and feeling trapped in an endless cycle of bills and high-interest rates?

You are not alone! This is a common scenario faced by many households, as the average American household carries over $90,000 in debt, with a significant portion being credit card debt. But don't worry; there is a way out. Debt consolidation loans can help you take control of your finances, merge your debts into one manageable payment, and achieve the financial peace of mind you deserve.

So, what exactly is a debt consolidation loan? And what are the best debt consolidation loans of 2023? Let's find out.

What is a Debt Consolidation Loan?

Debt consolidation is a part of the debt management strategy that helps you to consolidate multiple high-interest loans into a single loan at a comparatively lower interest rate. A debt consolidation loan is taking out a new loan at favorable terms to pay out other loans.

Cutting Debt
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For example, suppose you have high-interest credit card debt and personal loans with a total debt of $30,000, and the interest rate on your debt ranges from 15% to 25%. Now, you can take out a debt consolidation loan of $30,000 at a lower interest rate of 10% with a loan term of 5 years. This way, you save on interest costs and simplify payments into one monthly amount.

Pros and Cons of Debt Consolidation Loan

Struggling with multiple debt payments can be overwhelming, and debt consolidation can be an excellent solution. But, before choosing this option, it's crucial to evaluate its benefits and drawbacks to decide if it suits you.

Here are some pros of a debt consolidation loan:

Track Debt Payments

A debt consolidation loan brings all your debts under one roof, making it easier to keep track of payments and manage the debt repayment. Instead of keeping track of multiple debts with varying interest rates and due dates, you will have a single loan with a clear repayment schedule. You will now have one payment making it easier to track debt payments.

Save on Interest

The general idea behind debt consolidation loans is to combine multiple high-interest debts into a single loan with a lower interest rate. This way, you can reduce the overall interest cost on your debts and save the interest to eventually pay off the debt.

Saving Money
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Peace of mind

Managing multiple debts can be overwhelming and stressful, especially if you struggle to keep up with payments and interest costs. But you can have peace of mind knowing that you only have to make one monthly payment with debt consolidation.

Improved Credit Score

Late or missed payments on multiple debts can negatively impact your credit score. By consolidating these debts into a single loan with a clear repayment schedule, you can improve your ability to make consistent, on-time payments and your credit score over time.

Here are some cons of debt consolidation loans:

Risk of Further Borrowing

Debt consolidation might give you a false sense of financial stability and lead you to take on additional debt. It's not that your debt is gone; you are just replacing your multiple debts with one bigger loan. If you take on other debt, then it can further trap you in a debt trap with no escape.

Carrying Debt
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Longer Repayment Period

Debt consolidation loans often have longer repayment periods, which can result in paying more in interest over time. So, it's crucial to calculate the rates beforehand to determine whether it's worth it.

Impact Your Credit Score

Your credit score can see a temporary dip since taking out a new debt consolidation loan can result in a hard inquiry on your credit report. In addition, if you continue to use credit cards or take out new loans after consolidating your debts, your credit utilization ratio may increase, negatively impacting your credit score.

An alternative, not a solution

Debt consolidation only addresses the symptoms of financial distress, not the underlying cause. It's essential to address the reasons for your debt and develop a budget and savings plan to avoid future financial difficulties. So, debt consolidation isn't the solution but a better alternative to managing your debt in a more organized way.

How does a debt consolidation loan impact the credit score?

A debt consolidation loan is like a double-edged sword and can negatively and positively impact your credit score.

If you have multiple high-interest debts and are making late or missed payments, combining them into a single loan makes it easier to make consistent, on-time payments. This can potentially improve your credit score over time.

However, taking out a debt consolidation loan may result in a hard inquiry on your credit report that can temporarily lower your credit score. In addition, having a mix of different types of debts is good for your credit score, and consolidating all debt into one may negatively impact this factor.

Debt consolidation can positively and negatively affect your credit score, but making timely payments and keeping credit utilization low can help offset any negative impacts.

How to qualify for a debt consolidation loan?

The qualification criteria for the debt consolidation loan differs as per the lenders. But here are general criteria to consider:

Good Credit Score

When taking out a loan, having a credit score is very important as it shows lenders how responsible the borrower is. Most lenders require a credit score between 580 and 680 to qualify for the loan, but some offer loans with a low credit score at higher interest rates. So, having a good credit score increases your chances of getting approved and helps you land a good offer.

Also read: Why is a good credit score important?

Good Credit
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Proof of Income

You must show pay slips, W-2s, or tax returns to verify your income. You may also need to provide evidence of additional sources of income, such as rental income, child support, or alimony.

Debt-To-Income Ratio

The debt-to-income ratio shows the lender how much debt you owe compared to income. Usually, lenders require a debt-to-income ratio lower than 43%. But, this may vary depending on the lender.

No Recent Bankruptcies or Foreclosures

Getting approved for a loan can make it more difficult if you have recently gone through bankruptcy or foreclosure. Lenders may consider you a higher risk if you have a history of being unable to pay your debts.

Broken Piggybank
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Loan Amount

The loan amount you qualify for depends on several factors, including your credit score, income, debts, and the lender's policies. Generally, the amount you request should be enough to pay off your existing debts but not so much that it is unaffordable for you to repay.

Loan Purpose

Lenders may require you to use the loan only for debt consolidation and not for other purposes, such as paying for a vacation or buying a car. This is why some lenders pay all the debts for you instead of giving you access to the fund.

Best Debt Consolidation Loans of 2023


Lightstream Logo

Lightstream is a lender that stands out for its premium quality products and affordable rates. They offer debt consolidation loans with a seamless online application process, allowing you to choose your funding date and repayment terms. Their competitive rates come with no added fees, such as appraisal fees, prepayment penalties, or home equity requirements.

Key Highlights

  • Estimated APR of 7.99% - 23.99% with AutoPay.
  • Loan amounts ranging from $5,000 to $100,000.
  • No hidden fees, such as appraisals, prepayment penalties, or home equity fees.
  • Minimum credit score requirement of 660.

If you're a credit-savvy individual with a score of 660 or higher, LightStream is the perfect fit for you. Remember that they do not offer a pre-qualification tool, so checking your credit before applying is best to ensure you're approved. Additionally, with a minimum loan amount of $5,000, it may not be ideal for those who need to consolidate smaller debts.


Achieve Logo

Achieve, formerly FreedomPlus is a lending platform that provides personal loans through its underwriter, Cross River Bank. Since its establishment in 2014, it has become a popular option for debt consolidation loans due to its flexibility in loan terms and amounts, allowing borrowers to consolidate large debts and reduce their monthly payments over a more extended period.

Key Features

  • APRs estimated between 7.99% to 29.99%.
  • Loan amounts available from $5,000 to $50,000.
  • Loan terms offered between 2 to 5 years.
  • A minimum credit score of 660 is required.
  • Loan origination fees range from 1.99% to 6.99%.
  • The opportunity to lower rates by adding a co-borrower with sufficient income or by showing proof of retirement savings.
  • Same-day decisions, with funds sent within 24-72 hours if approved.

If you're seeking quick funding of loans with flexible loan terms and amounts, Achieve might be the perfect fit for you. With same-day decisions and fast funding, if approved, you can have the peace of mind of knowing you're on your way to debt consolidation.


Lending Club Logo

LendingClub offers a more inclusive lending solution for borrowers with less-than-perfect credit. The best part is that it allows you to easily check your customized rates without worrying about any negative impact on your credit score.

Key Highlights

  • APR estimated at 8.05% to 36.00%.
  • A minimum credit score of 600.
  • Loan amounts starting from $1,000 to $40,000.
  • 3-year minimum credit history required.
  • The debt-to-income ratio should be 40% for single applicants and 35% for joint applicants.
  • Loan origination fees range from 3% to 6%.
  • Loan terms from 3 to 5 years.

LendingClub stands out for its credit score check option that doesn't affect your score. Additionally, the platform has low loan amounts starting from $1,000, making it an excellent option for paying off small debts.

Happy Money

Happy Money Logo

Happy Money (formerly Payoff), founded in 2009, is a web-based lending platform offering fixed-rate debt consolidation loans for credit card debt across all states except Massachusetts and Nevada. Its main objective is to help borrowers eliminate high-interest debt by directly paying off their outstanding credit card balances.

Key Features

  • Estimated APR range between 8.99% to 29.99%.
  • Loan amounts ranging from  $5000 to $40,000.
  • Loan terms from 2 to 5 years.
  • Loan origination fees range from 0% to 5%.
  • No late fees or other fees.

Therefore, Happy Money is a perfect choice if you're looking for a solution to pay off credit card debt with flexible repayment options.

Universal Credit

Universal Credit Logo

Universal Credit is a digital lending platform that offers personal loans through its partners, with loan amounts ranging from $1,000 to $50,000. Loan repayment terms are available for 36 to 60 months or three to five years.

Key Highlights

  • Estimated APR ranging from 11.69%-35.93%.
  • Loan amounts range from $1000 to $50000.
  • Loan terms range from 3 to 5 years.
  • A loan origination fee of 4.25% to 8%.
  • Single monthly payment and fast funding.

Universal Credit may be the right choice if you have a low credit score. Although it has a higher APR and loan origination fee than other options, it offers loans to those with less-than-perfect credit that gets denied by most lenders.


Americor Logo

Americor is the nation's leading consumer credit and debt relief solutions provider. It offers innovative debt relief solutions to help clients get out of debt quickly. Americor provides debt consolidation loans, along with free debt analysis and counseling to help clients systematically eliminate their debt in three to five years.

Key Highlights

  • Estimated APR ranging from 15%-25%.
  • Loan terms range from 20-48 months.
  • The fund is provided to you, not creditors.
  • Free debt analysis.
  • Other debt solutions are available.

Therefore, if you're seeking a lender that understands your debt situation and offers effective debt relief solutions, Americor is the ideal choice.

Debt Consolidation Loans Alternatives

Debt consolidation loans are a lifesaver for individuals facing difficulties managing their finances and making multiple monthly payments. However, not everyone may qualify for these loans or find them the best fit for their financial situation. In such cases, there are alternative solutions that can help you gain control over your debt and reach a debt-free future.

Balance Transfer Credit Cards

If you are drowning in credit card debt, balance transfer credit cards can be a great alternative. These cards offer a low or zero-interest promotional period. This allows you to transfer high-interest credit card debt to the new card and pay it off interest-free within the promotional period. But you need a good credit score to qualify for this card.

Also read: What Are Credit Scores? How Do You Improve Them?

Debt Management Plan

If you have multiple debts and are struggling to make payments on time, a debt management plan may be a good option. This involves working with a credit counseling agency to negotiate with creditors to reduce interest rates and payments. You can opt for debt relief services such as JG Wentworth, New Era Debt Solutions, Pacific Debt Relief, etc.

Debt Management
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Snowball Debt Repayment Strategy

Snowball debt repayment strategy prioritizes paying off smaller debts first. By focusing on the smallest debt, you'll experience the satisfaction of paying off a debt quickly, motivating you to tackle bigger debts. As each small debt is conquered, you'll apply the extra money to the next smallest debt, snowballing your way toward a debt-free life.

Also read 4 Strategies To Pay Off Debt

401(k) Loan

If you have a 401(k) retirement plan, you may be able to borrow against it to pay off debt. This option only makes sense if the interest rate you're paying on your debt is higher than the interest rate on your 401(k) loan.


Debt consolidation loans offer a practical solution for those struggling with multiple debts. Bringing all debts under one roof simplifies the debt repayment process and can potentially reduce the overall interest cost, leading to significant savings over time. However, it's crucial to weigh the pros and cons, understand how to qualify for the loan, and choose the right lender before proceeding.


Feb 2, 2023

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