If you’re interested in the best debt consolidation loan to pay off credit cards, it helps to know how to compare consolidation loan companies. Here’s what to look for when comparing consolidation loan offers.
Interest Rate and APR
The loan’s annual percentage rate incorporates the interest you’ll pay and any fees charged to set up the loan. The APR calculation makes it easier to compare loans with different rates and costs.
“You should only consolidate your debt if you’re able to lock yourself in at a lower interest rate and/or lower your monthly payment.
James Lambridis, founder and CEO of financial information site DebtMD
Minimum and Maximum Loan Amount
If your credit card debt total is between $1,000 and $50,000, you’ll find many lenders to choose from – this range is fairly common. And some providers make six-figure personal loans, assuming that you qualify to borrow that much. If you’re concerned about getting approved for the amount you need, look for a lender that offers longer terms, which reduces the loan payment, or more flexible underwriting.
Other Considerations
Find out how fast you’ll receive funds. Some loan companies offer funding as soon as the next business day. And some streamline the process by paying off your creditors directly, so you don’t have to. “Consumers can use the proceeds to pay creditors directly, or, in many cases, have the lender do it directly,” says Kyle Enright, president of lending at Achieve, a financial services company that offers loans and debt relief. “In Achieve’s case, when we pay creditors directly, we provide an interest rate discount to the borrower on their loan.”
Flexible payment options can help, too. Lenders that allow you to set your payment due date can help you balance monthly payments in a way that works best for you.
Credit card consolidation loans can be a great solution for excess revolving debt, but they’re not the only option. Here are the advantages and drawbacks of consolidating your credit card debt with a personal loan.
| Pros | Cons |
| Fixed interest rates. Unchanging rates and payments make budgeting easier. | Higher payments. Even at lower interest rates, it can be hard to afford. |
| Rates are lower. Paying less interest frees up more cash to pay down balances. | Qualifying difficulties. Loans can be harder to qualify for than credit cards, unless you put up collateral or get a cosigner. |
| Shorter terms and fewer payments. Personal loans have definite end dates, and making a single payment can simplify your budget and help you get out of debt quicker. | Require commitment. Consolidating only works if you stop carrying credit card balances and pay them in full each month. |
Credit card consolidation can help you pay less interest. If your consolidation loan has a lower interest rate than the APR for the credit cards you pay off, you’ll pay less interest over time. In addition, there are fewer payments to juggle. Going from multiple credit card payments each month to a single monthly payment can help streamline your financial life. And you may get out of debt faster. If you have a lower interest rate with a credit card debt consolidation loan, more of your monthly payment goes toward the principal.
There’s also a sense of relief. Debt consolidation gives you a concrete finish line when you know your debt will be paid off, says James Lambridis, founder and CEO of financial information site DebtMD. “An unsecured debt consolidation loan typically lasts from two to five years, so you can give yourself peace of mind that at the end of the term, you will be debt-free once and for all.”
Credit card consolidation doesn’t always accomplish what you want. You might pay more interest. Not all loans are guaranteed to provide a lower interest rate than your credit cards, so do the math and make sure the consolidation will be worth it. And you might grow your debt. When you pay off a card’s balance, you free up that card to use again – and thus add to your debt. Be sure to stop using the credit card while you pay off the consolidated loan.
- Consider the debt avalanche method. Pay off your credit card balances beginning with the highest APR, and therefore save the most money because you’re getting rid of high-APR debt first.
- Try the debt snowball method. Pay off your balances from the smallest debt to the largest debt. You’ll pay more interest, but this method will continually give you the psychological boost to keep going.
- Use a balance transfer credit card. If your credit is good enough, you may be able to open a credit card with a high credit limit and an introductory 0% APR for 12 to 24 months. This would give you a chance to pay down your credit card debt without accruing more interest. Though, you’ll likely have to pay a balance transfer fee.
- Use a home equity loan or line of credit. That may get you a lower rate and more affordable payment. However, you need home equity and the overall cost could be higher.
- Seek credit counseling. If you feel like you’re drowning in debt and have no hope of getting rid of it, speak with a credit counselor from an agency accredited by the National Foundation for Credit Counseling. Counseling will help you clarify what you need to do next. And debt management plans offered by these agencies can help you pay off your debt sooner.
- Consider debt settlement. If you’ve exhausted other options and still find yourself struggling with your debt, it might be time to consider debt settlement. With this option, debt settlement companies work with your creditors to reduce what you owe. But be cautious: Debt settlement can be expensive and can damage your credit score if your credit is still in good standing. Plus, your forgiven debt may be taxable.
Most lenders allow you to check your rate and loan amount with a soft credit inquiry, which doesn’t affect your credit. These rate checks allow you to shop around for the best credit card refinancing loan before you submit a formal application, which will trigger a hard inquiry against your credit report, potentially taking off a few points. After you apply, it can take anywhere from hours to a couple of days to receive funding.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. Personal loan companies are evaluated based on customer service ratings, interest rates, maximum loan term, minimum and maximum loan amounts, minimum FICO score, online features, and origination fees. The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Credit card debt consolidation rolls multiple credit card balances into one loan.
With a personal loan for debt consolidation, you borrow a lump sum of money – ideally at a lower interest rate. You then use that money to pay off some or all of your high-interest credit card balances.
Refinancing your credit card debt will help in the long run if you make on-time payments, although you do run the risk of hurting your credit score in the short term.
Consolidating credit card debts using a personal loan can affect your credit score both positively and negatively. However, successfully paying off credit card debt using a personal loan should have a more positive than adverse effect on your credit.
- Applying for a loan creates a hard inquiry, which can cause a small drop in your credit score.
- Replacing older accounts with a new loan reduces the average age of your accounts, which slightly lowers your score.
- Replacing revolving balances with an installment loan lowers or even eliminates your credit utilization ratio, which accounts for 30% of your FICO score.
- Paying your new loan on time each month adds valuable positive credit history, which makes up 35% of your score.
