Debt consolidation loans

Consolidation only helps if the new APR is genuinely lower than the blended rate on the debts you are replacing, and if you stop adding to the balances you have just cleared.

Because the loan is fixed rate and fixed term, you get a definite payoff date instead of a revolving balance that can drift for years at a variable rate.

Before you borrow for debt consolidation, run through the points below. They are where most of the avoidable cost sits.

• An origination fee deducted from the disbursement can wipe out the saving on a small balance
• Stretching a two-year payoff into five years lowers the payment but can raise total interest
• Closing the cleared cards can shorten your average account age and reduce available credit

A personal loan is not always the cheapest route. It is worth ruling these out before you commit.

• A 0% balance transfer card, if the balance is modest and you can clear it inside the promotional window
• A hardship or repayment plan negotiated directly with the existing creditor
• Nonprofit credit counselling, which can consolidate payments without new borrowing

A personal loan for debt consolidation can make sense if the fixed rate is lower than your existing financing and the monthly payment fits your budget.

Remember to compare APRs across lenders, watch for origination fees, and only borrow what you can comfortably repay.

Most personal loans from our lending partners are unsecured and fixed rate. With no collateral involved, the lender prices the loan almost entirely on how likely it believes you are to repay. That judgment is built from your credit history, your income relative to your existing debt, how long you have been employed, and the amount and term you ask for.

Personal loans can also be secured by collateral, such as a motor vehicle. Pledging collateral can support a larger amount or a lower rate, but it puts the vehicle at risk if the loan is not repaid. Secured options vary by lender and may not be available through the lenders currently listed here.

The number that matters is the APR, not the interest rate. APR folds in the interest rate plus any origination fee, so it is the only figure that lets you line two offers up fairly. A loan quoted at a lower interest rate can easily cost more once a 6% origination fee is deducted from the money you actually receive.

• Credit history and score band: the single biggest driver of the rate you are offered
• Debt-to-income ratio: monthly debt payments measured against gross monthly income
• Loan amount and term: longer terms usually carry higher rates
• Income stability: length of employment and whether income is verifiable
• Whether the loan is secured: collateral can lower the rate a lender is willing to offer
• State of residence: not every lender lends in every state