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Published: Oct 06, 2023 36 min read

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Company Highlight
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Consolidation loans available

  • Serving customers with $20,000 of debt and more
  • 100% free, no risk consultation
  • Significantly reduce your debt
  • No upfront enrollment fees
  • Get out of debt in 24-48 months!
  • Applying won’t affect your credit score
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Fast and easy application process

  • No upfront fees
  • One-on-one evaluation with a debt coach
  • Become debt-free in 24 to 48 months
  • For people with $7,500 in unsecured debts and up
  • Rated A+ by Better Business Bureau
Our Partner

Consolidation loan options for those who qualify

  • Free, personalized evaluation from certified debt consultants
  • Over 850,000 clients have enrolled in the Freedom Debt Relief program since 2002
  • American Fair Credit Council accredited
  • Settled over $15 billion in client debt since 2002
  • Recommended for people with $15,000 in unsecured debts and up
  • No upfront fees
Our Partner

Consolidation Loans Up to $100,000

  • Ideal for consumers with over $10,000 in unsecured debt
  • Flexible repayment terms with your budget in mind
  • Free quotes are offered
  • “A” Rated by the BBB
  • Reviewing offers won't impact credit
  • Easy pre-approval process with instant decision
Our Partner

Loans from $5,000 - $100,000

  • Must have good to excellent credit
  • Low-interest, fixed-rate debt consolidation loans
  • Flexible payment terms and no fees/prepayment penalties
  • Same day funding if certain conditions are met
  • Simple online application can be completed in minutes

Provided by Credible

*Rates and APYs are subject to change. All information provided here is accurate as of September 30, 2023

Debt consolidation can be an effective way to pay off large balances faster, especially if you have multiple high-interest debt payments to make every month.

Compare our picks for the best debt consolidation loans and read our guide to find out how consolidating can help reduce your debt, simplify your personal finances and save you money in the long run.

Our Top Picks for Best Debt Consolidation Loans of October 2023

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If you owe over $15,000 in debt, a Debt Relief Program may be able to help get you back on your feet more quickly.
Select your state to begin applying for Accredited Debt Relief's relief program.
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Best Debt Consolidation Loans Reviews

  • No fees for loan origination, late payments or prepayment
  • Borrowers with excellent credit can get a lower interest rate
  • 0.50% rate discount for setting up Autopay
  • Doesn't provide loan pre-approvals
  • Doesn't accept loan applications via phone or fax
  • Autopay discount only available before loan disbursement
8.99% - 25.49%
Loan amount
Term options
24 to 144 months, depending on the loan type
Minimum Credit Score

Why we chose it: LightStream is our top choice for large loans, considering its $100,000 limit and flexible repayment terms of two to 12 years.

LightStream offers personal loans up to $100,000 with terms ranging from 24 to 144 months, the widest range among the companies we evaluated. You can check payment term options by entering your desired loan amount in their debt consolidation loan calculator. However, note that this calculator provides a general calculation using the lowest possible APR.

With its Rate Beat Program, LightStream offers an interest rate that is 0.10% lower than any competitor’s rate, but only if you have already been approved for the competitor’s lower rate. This means you would need to apply for both loans and successfully obtain a lower APR elsewhere.

If the customer is not satisfied with their loan experience within the first 30 days, they can contact customer service and request a questionnaire. After evaluating the issue, LightStream can compensate the borrower with $100.

LightStream is a good option for those with excellent credit who need a large loan, as it requires good to excellent credit, an established credit history, various open accounts and a stable income.

  • Unemployment protection
  • Pays lenders directly
  • Accepts joint applications
  • Loan disbursement in one or two business days unless paid directly to creditors
  • Term range isn't as varied as competitors
  • Not open to Mississippi residents
  • Co-applicant must live in the same residence as the primary borrower
Loan amount
Term options
Two to seven years
Minimum Credit Score

Why we chose it: SoFi’s credit card consolidation loans don’t charge any origination, prepayment or late payment fees; additionally, they offer multiple ways to get discounts on their rates.

SoFi funds most personal loans on the same day of approval — unless the loan is for more than $20,000 or the borrower enrolls in Direct Pay, a service where SoFi pays lenders directly and the borrower doesn’t actually receive the loan proceeds. (Note that those who enroll in Direct Pay obtain an additional 0.25% APR discount on their loan rate.)

SoFi offers temporary payment modification and job placement assistance if a borrower loses their job. This benefit is offered in three-month increments for up to 12 months. Interest will continue to accrue during that period. To qualify, borrowers have to also qualify for governmental unemployment compensation and actively participate in SoFi’s Career Advisory Group as part of their job search.

Although its main competition offers longer payment terms or lower interest charges, SoFi’s various additional banking services, accessible customer service and comprehensive mobile app make it an excellent choice for anybody looking for a no-fee loan.

  • Apply and check application status online
  • Accepts co-borrowers
  • No origination fee or prepayment penalty
  • You need to be a credit union member for disbursement
  • No Autopay discount
7.99% - 17.99%
Loan amount
Term options
12 to 60 months
Minimum Credit Score
Not disclosed

Why we chose it: With its $600 minimum loan amount, high customer satisfaction and low interest rates, PenFed is our top pick for best debt consolidation loan for debt under $1,000.

PenFed is a members-owned federal credit union. Becoming a member is a good idea because federal credit unions typically offer more favorable loan terms, such as lower interest rates and fewer fees. Borrowers looking for a small loan will be glad to know that there’s a $600 minimum you can apply for.

You don’t have to be a PenFed member to check your rates and get pre-approved. However, you’ll need to become a credit union member to apply for a loan. To become a member, you must open a savings account, for which you’ll need to deposit a minimum of $5. After approval, the loan is disbursed within 1-2 business days.

PenFed doesn’t charge origination or early payment fees, but there’s a $29 late payment fee to those submitting their payment more than five days late. In addition, PenFed features a mobile application for iOS and Android where members can check their loan status, make loan payments and transfer money between accounts.

  • Partners with TransUnion to provide your credit score
  • Online application process and loan calculator
  • Loan products for borrowers with poor credit
  • Some lenders offer personal loans up to $250,000
  • Credit requirements depend on the company selected
  • Some of its lenders will charge an origination fee of up to 6% of the loan amount
Depends on the lender you're matched with
Loan amount
Depends on the lender you're matched with
Term options
Depends on the lender you're matched with
Minimum Credit Score
Depends on the lender you're matched with

Why we chose it: Fiona ranked as best for comparing personal loan lenders as its marketplace enables borrowers to browse and compare multiple lenders based on criteria like credit score and location.

Fiona offers personal loans for debt consolidation from an array of lending partners and for all types of credit, from poor to excellent. It partners with renowned companies such as LendingClub, SoFi, Avant and Marcus by Goldman Sachs.

In contrast to other lenders, some of Fiona’s lending partners offer secured personal loans for debt consolidation. Secured loans require a property or assets — car title, stock investments, equity from life insurance policies, real estate, and precious metals — to back up the loan. Be aware, however, that if you fail to make payments on a secured loan, the lender will repossess the assets you used as collateral.

Among other loan offers, there’s refinancing for secured personal loans as well as unsecured personal loans, including auto, student loan and mortgage refinance.

Since Fiona is not a lender itself, but a marketplace, fees will depend entirely on the lender you’re matched with, so be sure to read the fine print during your application process.

  • Pays lenders directly
  • Same-day approval
  • You can return loan funds within 30 days
  • You can apply online or by phone
  • Minimum household annual income of $25,000
  • Late payment fee of $39
  • Funds cannot be used to pay secured loans or Discover credit cards
7.99%- 24.99%
Term options:
Term options
36 to 84 months
Minimum Credit Score

Why we chose it: Discover’s low interest rates make it our top choice for best debt consolidation loan for credit card debt.

Discover doesn’t charge any origination or prepayment fees, and its personal loans have some of the lowest minimum APRs available. Upon approval, Discover will disburse loan funds directly to your creditors within one business day. Also, if a client is not satisfied with their experience or can pay back quickly and without interest, they can return the funds within 30 days.

Discover requires a minimum of $25,000 in annual income and, like most other lenders, evaluates debt-to-income ratio, credit history, application information and the selected payment term.

Clients can access 24/7 customer service over the phone and through the Discover mobile app for iOS and Android. They can also check their FICO score, access their bank account, make payments, and check balances through the app.

  • Assists borrowers with debt management
  • Doesn't charge a fee until all debts are settled
  • Could match customers with lenders through an affiliate program if needed
  • Minimum of $20,000 debt
  • Charges a fee of 15-25% of the debt amount
  • Origination fees for personal loans range from 1% to 6% of the financed amount
4.9%-35.99%, depending on loan affiliates
Loan amount
$1,000-$100,000, depending on loan affiliates
Term options
4 to 84 months, depending on loan affiliates
Minimum Credit Score
Depends on loan affiliates

Why we chose it: Accredited Debt Relief is primarily a debt settlement service that helps people consolidate and renegotiate their debt.

Customers must have at least $20,000 in unsecured debt and pay a fee of 15-25% of the debt after their debts are settled. While that fee might seem high, there are two factors that come into play.

First, Accredited doesn’t charge until accounts have been settled and there’s a clear path forward to get rid of the remaining debt. And second, outstanding debt could be reduced by up to 50%, which would leave customers still paying much less than they originally owed.

Accredited also offers debt consolidation loans if that is determined to be a better course of action for the client. The company operates an affiliate program to match customers with debt consolidation lenders. Loans range from $1,000 to $100,000, and origination fees range from 1% to 6% of the amount financed.

Accredited has been in business for over 13 years and is accredited by the American Fair Credit Council and the Consumer Debt Relief Initiative. The company also has an A+ rating with the Better Business Bureau.

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Other lenders we considered

For our top list, we analyzed several debt consolidation loan lenders and selected the ones with competitive interest rates, excellent customer service and a variety of loan terms. The following companies didn’t stand out in those categories, but they might be a good fit for your needs.

National Debt Relief

  • Offers debt management services
  • Free consultation
  • Negotiates with creditors to settle client's outstanding debt
  • Online quote
  • Not a loan originator
  • Only works with clients that have at least $10,000 in debt
  • Charges a fee of 15-25% of the debt amount

National Debt Relief services include options for consolidation loans, credit counseling services, and bankruptcy referrals. To prequalify, borrowers need to have at least $10,000 in unsecured debt. National Debt Relief also charges a fee of at least 15% of their client’s debt amount.

Why it didn’t make our top picks: National Debt Relief didn’t make it to our main list because it’s not a loan originator; it is a debt consolidation company or debt management service.

Happy Money

  • Payoff loan with customizable terms, rates and monthly payment
  • APRs start at 11.75%
  • Pays creditors directly
  • Loans start at $5,000
  • Origination fee of 0%-5% of the loan amount
  • Customers report prolonged approval time

Happy Money doesn’t charge any application, prepayment or late fees. However, it does charge an origination fee of up to 5% of the loan amount. The company claims loan approval can take from 5 to 7 business days, and direct payment to creditors as much as two weeks.

Why it didn’t make our top picks: Many customer reviews report approval delays of up to 30 days. They also report that direct payment to creditors may take up to 30 business days as well.

Best Egg

  • Approval in minutes
  • APR from 8.99%-35.99%
  • Funds within 24 hours after approval
  • Personal loan calculator
  • Origination fee of 0.99-8.99% of the loan amount
  • Origination fee on a loan term 4-years or longer will be at least 4.99%
  • High income requirements to qualify for the lowest rates

Best Egg is a lending platform that provides personal loans ranging from $2,000 to $50,000. The platform provides a simple and convenient online application process, facilitating access to financial assistance. Personal loan options include consolidating multiple loans into a single loan or refinancing credit card debt.

Why it didn’t make our top picks: Best Egg charges a high origination fee. It also has highly selective criteria for the best rates; borrowers must have a minimum FICO score of 700 and an annual income of at least $100,000 to qualify.

OneMain Financial

  • Debt consolidation calculator
  • Brick-and-mortar locations
  • Loan specialist counseling
  • APR from 18%-35.99%
  • Late payment fees from $5 to $30 or 1.5%-15% of your loan amount
  • Origination fees from $25 to $500 or 1%-10% of your loan amount

OneMain Financial offers online and in-person banking, with branches in 44 states. It features secured and unsecured debt consolidation loans from $1,500-$20,000 and terms from 24-60 months. To obtain the lowest rate on large loans, OneMain requires collateral.

Why it didn’t make our top picks: OneMain Financial didn’t make our top picks because of its interest rates and fees, which are significantly higher than competitors.


  • Funded one day after approval
  • No prepayment penalty
  • Avant mobile app for iOS and Android
  • Administration fee of up to 4.75%
  • Late and returned payment fees
  • No Autopay discount available

Avant features loan pre-approval, Autopay and a mobile app available where customers can manage their loans. Customer service is available online, via email or by phone.

Why it didn’t make our top picks: This lender didn’t make our list because of its high interest rates and number of fees, and its lack of discounts to offset these costs.


  • Loans from $1,000-$50,000
  • No prepayment penalty
  • Only offers three and five years terms
  • High origination fee

Upstart debt consolidation loans range from $1,000-$50,000. Potential borrowers can obtain a pre-approval with a soft credit pull that won’t impact their credit score. Most loans are funded the next business day after approval.

Why it didn’t make our top picks: While Upstart ranks highly in customer satisfaction, its high origination fee of up to 8% and payment terms of only 3 or 5 years kept it off our list.


  • Online application
  • Same-day approval
  • Loan funding in one to three business days after approval
  • Limited terms
  • Origination fee of 1.99%-5.99%

Achieve offers personal loans for debt consolidation featuring same-day approval and funding between one to three business days after accepting the loan offer.

Why it didn’t make our top picks: Achieve isn’t part of our main list because of its high origination fee and limited terms of 2 to 5 years.

Debt Consolidation Guide

Being in debt is an unavoidable part of modern life. However, it is crucial to understand the difference between good debt and bad debt. Good debt — a mortgage or student loan — can potentially benefit your long-term financial health, while bad debt — owing money on your credit card — traps you into paying high interest on things that don’t increase in value.

Many of us find ourselves stuck in the situation of owing substantial amounts to multiple creditors, with high balances that never seem to come down. This is where debt consolidation comes in.

Read on to explore the different debt consolidation options available to you, and how they can simplify and improve your financial life.

What is debt consolidation?

Debt consolidation involves combining multiple debts — credit card balances, medical bills or personal loans — into a single loan. This new loan typically offers lower interest rates and allows the borrower to make a simple monthly payment.

People consolidate debt to potentially reduce their overall interest rates and pay off their debts more efficiently.

Two of the most common types of debt consolidation are debt consolidation loans and balance transfer credit cards.

Personal loans

People take out personal loans for all types of reasons, including financing big purchases, paying medical bills or making home improvements. The best personal loans offer low APRs, no fees and no prepayment penalties.

A debt consolidation loan is a personal loan you use expressly to pay off your existing debts. It combines all of your high interest debt into a lower interest loan with a single monthly payment. This saves you money in interest and also makes the debt quicker and easier to pay off.

Personal loans are typically unsecured. This means that the lender can’t take any of your assets if you default on the loan. However, your credit score will usually play a big part in the approval process, and will determine how favorable an interest rate you’ll receive.

Balance transfer credit cards

Moving debt from one credit card to another is known as a balance transfer. This can be a good option if you have high-interest debt on one card and can consolidate credit card debt to another, lower interest rate card.

The best balance transfer credit card offers often come with extremely favorable terms up front, like 0% APR for a year and little or no transfer fee. While these can be an effective tool for debt management, make sure to understand the terms. Interest rates can dramatically increase after the initial term if you don’t fully pay off the transferred balance.

Additionally, beware of the temptation to transfer all of your high interest debt to a new card. A large part of your credit score depends on your credit utilization ratio. This not only includes your overall amount owed, but also your amount owed by account. Maxing out one card with multiple balance transfers could negatively affect your credit score.

How does debt consolidation work?

If you are considering debt consolidation, you may have several questions about the process. Is debt consolidation the right choice for you? What are the pros and cons? What kind of impact, if any, will debt consolidation have on your credit?

You may also have heard of debt settlement, and want to know the difference between this and debt consolidation. We’ve compiled the answers to these questions below.

Does debt consolidation hurt your credit?

Applying for a debt consolidation loan or a balance transfer credit card will inevitably have an impact on your credit. Because you are applying for more credit, a hard inquiry will appear on your credit report.

However, this drop is usually minor and temporary. And if you pay off your balance effectively without incurring more debt in the process, debt consolidation will eventually help your credit score and put you in a better financial position.

Aside from the hard inquiry, here are other ways debt consolidation may positively or negatively impact your score:

  • Credit age: Opening a new account — whether it’s a loan, credit card or mortgage — will lower your average credit age, which affects your score. How much it decreases depends on the length of your credit history. The longer your history, the less impact the new account will have on your score.
  • Number of accounts: The number of accounts you have also affects your credit. In certain cases, the more accounts, the merrier, but too many accounts can hurt you too, especially if they’re revolving credit. Additionally, a new loan can impact your eligibility for new accounts if it substantially increases the amount you owe overall.
  • Single payment: Combining all your accounts into a single payment means you are more likely to keep better track of your finances and pay on time, which can improve your score.
  • Credit mix: If you choose a personal loan, it will add variety to your credit mix which could have a positive impact on your score.
  • Credit utilization ratio: If you’re using a personal loan to eliminate mostly credit card debt or other lines of credit, it will lower your overall utilization ratio as you pay off the loan and most likely improve your score.

At this point you may be wondering how long will debt consolidation stay on your credit report? Debt consolidation accounts that are closed and in good standing positively affect your credit and can remain on your report for up to ten years. However, late payments to debt consolidation accounts can remain as negative marks on your credit for up to seven years.

Differences between debt consolidation and debt settlement

Though they sound similar, debt settlement and debt consolidation are two different things. With debt consolidation, you are shifting the entire amount you owe to a personal loan or credit card with more favorable terms. Debt settlement is a process in which you or a debt settlement company negotiates directly with your creditors in order to get them to accept an amount less than you owe.

When you employ a debt settlement company, they will instruct you to stop paying your creditors and start paying them. They will then collect your money into an account and use their industry connections to start negotiating with your creditors on your behalf. If all goes well, the creditors will agree to a lower amount. Only then can the debt settlement company begin charging you. Most will take 15%-25% of your enrolled debt.

While that sounds like a lot, considering a debt settlement company can reduce your debt by up to 50%, the customer ends up paying less even with the company’s fee. So what is the downside?

Debt settlement will almost always negatively affect your credit score. Firstly, when you stop paying your creditors you are missing payments, which out of all the factors is the one thing that affects your score the most. It could take months or even years for the debt settlement company and your creditors to come to an agreement. All the while you are missing payments, incurring late fees and likely dealing with collection calls.

These delinquent accounts and closed accounts where the creditor settled for less can negatively impact your credit for up to seven years. Therefore, we recommend debt settlement as an option for those who are unable to get a personal loan or credit card with a more favorable interest rate than their existing debt.

Debt consolidation vs. debt settlement

Debt consolidation Debt settlement
Multiple debts are combined into a loan or transferred to a credit card with a single interest rate Stop paying creditors and negotiate with them to take less than you owe
Interest rates vary. Some loans and credit cards have fees Debt settlement companies usually charge 15-25% of the settled debt
Will be an initial dip because of the hard pull, but if used responsibly can improve credit in the long run Will most likely negatively affect your credit. Missed and late payments to creditors can remain on your report for years
Save money on interest, simplifies payments, and can ultimately improve financial health and credit score You could pay less than you owe and eliminate debts
You generally need better than average credit to qualify for favorable terms. Also, if you choose a credit card transfer the APR could change after an introductory period It is a gamble because there is no guarantee creditors will agree to a settlement. Plus, late and missed payments, and closed accounts could significantly hurt your credit score

Pros and cons of debt consolidation

While debt consolidation can potentially save you tons in interest and simplify your financial life, you should be aware of all the facts before committing to a debt consolidation method. Here are some of the pros and cons of debt consolidation.


Improved credit score - After an initial drop, you should see a gradual improvement in your credit score over time, provided you make timely payments and do not incur any more debt.

Pay debt off faster - Consolidating multiple high interest debts into a lower interest loan means you are paying more toward the principal and less toward interest each month.

Easier budgeting - Keeping track of one payment as opposed to multiple makes it easier to keep your financial house in order.


High interest rates - If you have fair to poor credit you may not qualify for a loan with a substantially better interest rate than your existing debt. Debt consolidation loans tend to have high interest rates compared with other personal loans because of the risk.

It doesn’t fix underlying issues - If purchasing things you can’t afford is the root of the problem, debt consolidation may provide a brief respite, but it’s not a magical fix if your spending habits are to blame.

Fees - Debt consolidation loans often have fees. Examples of these are origination fees and prepayment penalties.

Is debt consolidation right for you?

Debt consolidation is a great option if you can get rates and terms more favorable than your current debt structure. Generally this will require a better than average credit score. As is sometimes the case, those carrying a large, high interest debt load may not possess a high enough credit score to truly take advantage of the benefits of debt consolidation loans and balance transfer credit cards. In these cases it would be useful to explore some of the many alternatives to debt consolidation.

How to get a debt consolidation loan

1. Do a credit check by requesting your reports from one or all three credit bureaus. This can help you get a better idea of the interest rate you’ll get before risking a hard pull on your credit.

2. Calculate your debt and determine the interest rate you’re currently paying on your credit cards and other outstanding debt. This will help you determine the interest rate you’d need from a debt consolidation lender in order for the loan to be worthwhile.

3. Research lenders, their interest rates, loan terms and fees.

4. Use a loan or a debt-to-income ratio calculator to get an idea of the rate you can obtain with your credit score.

5. Decide on a lender offering a lower interest rate and lower fixed monthly payments than what you currently have.

6. If the pre-approved offers involve a higher interest rate than what you’re currently paying, consider whether you have a friend or family member with a higher credit score that is willing to act as co-signer.

7. Apply for a loan.

8. Make sure to read the fine print of the offer before accepting it.

9. Obtain the loan funds and pay your debt or, if the lender has a direct payment option, have the lender pay your creditors on your behalf.

How to get a debt consolidation loan with bad credit

Some lenders work with customers with poor credit; however, most lenders will require at least a 620 FICO score. Additionally, lenders will invariably charge borrowers with a poor or no credit history its highest APRs. If you have bad credit, here are three tips to help you get a debt consolidation loan:

Get a secured debt consolidation loan. You can use collateral, such as your car or your home, to guarantee the payment of a secured debt consolidation loan. This type of loan may be easier to get approved for if you have bad credit.

Add a co-signer. If you have a friend or family member with good credit, they may be willing to cosign on your debt consolidation loan. Adding a co-signer may also get you a lower interest rate.

Work with a credit counseling agency. An agency can help you negotiate lower interest rates with your creditors. They can also create a debt management plan (DMP) for you.

Whether you finally get loan approval or your loan application continues to be denied because of poor or no credit, the next step should be to improve your credit score and credit history. To fix your credit, you can also utilize a credit repair service.

How to choose the best debt consolidation loan

Selecting the right debt consolidation loan will depend on your financial goals and how much of a monthly payment you can afford.

When choosing a debt consolidation loan, consider the following:

Interest rates

  • APRs typically range from 6.99% to 24.99%.
  • Your interest rate will depend on your credit score (FICO or VantageScore), current income, and debt-to-income ratio, among other factors.
  • Aim to find APRs lower than your current interest rates; for example, if you have a 15% average APR on your credit card debt, only consider lenders that offer lower APRs to consolidate your debt.


  • Lender fees may include origination, late payment, and prepayment penalties.
  • Origination fees usually range from 0% to 10% of the loan amount.
  • Late payment fees can range from $25-$45.
  • Prepayment penalties can be a fixed fee, a percentage of the loan balance, or the interest amount the lender loses by the early payment.
  • Compare lender fees. Not all lenders charge all fees—and some lenders don’t charge any fees!

Loan terms and repayment options

  • Most repayment options range from one to seven years.
  • Many lenders offer the option of paying creditors on your behalf.
  • Different repayment options include using a mobile app, website, over the phone and setting up direct deposit.
  • Look into repayment options and additional perks like credit score and identity theft monitoring.

Alternatives to debt consolidation

Although debt consolidation is effective and can have a positive impact on your financial health, it isn't the only way to get out of debt. If you cannot qualify for a debt consolidation loan or balance transfer credit card with a better APR than your existing debt, the good news is there are several other options available to you.

Debt management

A debt management plan is a service offered by credit counseling agencies. It aims to get you out of debt, but also provides a multidisciplinary approach to improving your spending habits and budgeting skills. Debt management plans are often offered by nonprofit agencies so they may be free aside from a setup or monthly fee. Certain eligibility requirements must also be met.

Debt management counselors evaluate your particular situation and create a personalized debt management plan. This can include negotiating with your creditors for more favorable terms such as better APRs, less fees and lower monthly payments. It also can include financial workshops to educate the client on better budgeting and spending habits. In more extreme cases it can also include bankruptcy counseling.

Debt management offers a responsible way to pay back your debt. Generally speaking, unless the counselor recommends you to close accounts, it won’t have a negative effect on your credit score.

Debt settlement

Where debt management plans negotiate with your creditors in order to get better terms, debt settlement (or debt relief) refers to the process of negotiating with creditors to get them to take less than what you owe.

Debt settlement companies do this by first instructing you to stop paying your accounts and let them lapse. Then you pay an agreed monthly amount to the debt settlement company which they will collect in a dedicated bank account.

Faced with the prospect of receiving nothing, the creditor then agrees to accept a smaller amount paid from the dedicated bank account.The debt settlement company cannot charge you until this agreement has been reached and there is a clear plan forward. The fee is usually around 15-25% of your enrolled debt.

While you’ve effectively paid less than you owe, the late payments, missed payments and closed accounts will have a negative effect on your credit that could last for years to come. Therefore, debt settlement should be used in cases where customers already have a low credit score and can’t avail themselves of debt consolidation loans or balance transfer credit cards.The best debt relief companies can get your debt eliminated in as quick as a year.

Negotiate with debt collectors

If some of your debt is delinquent and has been sold to debt collectors, you might have a chance to reduce what you owe. Debt is usually bought for much lower than its original amount. This means you have a chance to negotiate with collection agencies and come to a middle ground between what you originally owed and what they paid for your debt.

If you’re being contacted by debt collectors, it’s important to know your rights, as established by the Fair Debts Collection Practices Act (FDCPA). Ask for all the information regarding your debt before proceeding with any payment. Once it’s confirmed, negotiate the payment amount and terms with the collection agency until you reach an agreement you’re satisfied with.

Note that, while you can negotiate to pay less than what you owe, this compromise will be reflected in your credit history and negatively impact your score.

Here, you can find a more detailed guide on how to negotiate with debt collectors.

Home equity loans and home equity lines of credit

Home equity loans and home equity lines of credit (HELOCs) let the customer borrow money against their home equity. Home equity is the difference between the value or amount your home could be sold for and what you owe the mortgage lender.

With a loan, a lump sum is disbursed in one payment. Lines of credit, on the other hand, are revolving credit. You can withdraw money from this line of credit as needed during its draw period; when this period ends, you pay back whatever you used in monthly installments.

If this sounds like the right choice for you, check out Money’s best home equity loans for more information.


Bankruptcy is a legal action taken by people or businesses that have reached a point where they’re unable to pay back their debt. It should be the last resort for dealing with creditors and debt issues as it negatively impacts your credit score and your ability to obtain credit in the future. There are two main types of bankruptcies:

  • Chapter 7: When a trustee takes control of your property to sell it or turn it into a profit to pay your creditors. Depending on the state you live in you might be able to keep some of your properties.
  • Chapter 13: A court approves a repayment plan where you agree to pay part of your wages to your creditors. A trustee will be appointed by the court to collect the money from you and make sure that the payment plan is completed.

Not all debt can be discharged by the court when you file for bankruptcy. Some of the debt that cannot be discharged are:

  • Child support
  • Student loans
  • Court fines
  • Most taxes

A bankruptcy will appear on your credit report for around ten years, making it more challenging to apply and be approved for credit in the future.

If your situation calls for this measure, read our guide on how to file for bankruptcy for more detailed information.

Debt Consolidation Loans FAQ

What is debt consolidation?

Debt consolidation is a financial strategy involving a new loan to pay off multiple debts. Find out more by reading the section Debt Consolidation Guide and evaluate whether it makes sense for you.

Is debt consolidation a good idea?


Overall, debt consolidation can be a good option for those struggling to manage multiple monthly payments. Also, a debt consolidation loan with a reasonable interest rate helps you pay down your debt more quickly by reducing your overall interest costs.

However, consolidating debt is only recommended if you have good credit and qualify for a lower interest rate. Be sure to compare interest rates, loan terms and fees before choosing a loan.

How does debt consolidation work?

Debt consolidation works by taking out a new loan to pay off multiple current debts. The new loan typically has a lower interest rate than the existing debts, so you can save money on interest payments over time. The lender will assess your credit score and income to determine if you qualify for the loan and to establish the specific conditions of your loan.

What is the best debt consolidation company?

Choosing the best debt consolidation company depends on your priorities. Among the best debt consolidation companies, we found that LightStream is a good choice for consolidating a large debt. For smaller loans, PenFed is a good option. If you are looking for a one-stop shop, Fiona offers debt consolidation loans for all types of credit and allows you to compare top lenders in one place.

How We Chose the Best Debt Consolidation Loans

To select the best debt consolidation loans, we took into consideration the following:

  • Rates. We chose lenders that offered some of the lowest APRs on the market.
  • Variety of loan terms. We favored lenders that offered a wide array of repayment terms, from six months to more than five years.
  • Customer service. The best debt consolidation lenders should have accessible customer service and loan specialists, as well as a variety of ways to reach them — phone, email and chat.
  • Streamlined application process and fast funding. While some lenders do require customers to call or visit a bank branch, we favored those that made the application and funding process as quick and painless as possible.
  • Less or no fees. Most lenders charge fees; we looked for those that charged the least, if at all.

Summary of Money’s Best Debt Consolidation Loans of October 2023