Credit card debt can hurt your credit score — even if you're dutiful about making on-time minimum payments every month. And if you have outstanding debt on more than one credit card, it may seem like there's no end in sight.
If you feel like you'll never be able to pay off your high-interest credit cards, a debt consolidation loan may help you get on track with a more straightforward and affordable payoff plan. And you get the added bonus of improving your credit score, too.
Ahead, Select explains why lowering your credit card balances with a debt consolidation loan can have a positive impact on your credit while also helping you take steps toward financial freedom.
How your credit card balance impacts your credit score
Your credit utilization rate (CUR) is the second biggest factor (after payment history) that makes up your credit score. FICO and VantageScore, the two most common credit scoring models, look at the size of your credit card balances in comparison to how much available credit you have left.
Both major scoring models rank "amounts owed" and/or "percent of credit limit used" just below the number-one most important factor, on-time payment history.
Experts recommend keeping your total CUR well below 30% — so if you have a $10,000 credit limit, you should aim not to spend more than $3,000 each billing cycle. Some experts even suggest staying below 10%, which might not always be realistic depending on your budget and how much credit you have available.
What to do if your debt is ruining your credit score
If your high credit card balance is impacting your score, you'll want to take steps to pay it off as soon as possible.
The fastest option is to make higher-than-minimum payments until you've completely paid off your full balance. You'll continue to pay interest, but depending on how much you can afford to pay each month, you could tackle it before the interest charges get too out of control. But not everyone can afford to go this route.
If the balance is so high that you can't make a considerable dent, and you're spending a lot of money on high interest charges, you might want to consider transferring that debt to a personal loan with a lower APR. While applying for a debt consolidation loan will result in a small ding to your credit score (as with every hard inquiry), drastically lowering your CUR will more than likely result in a noticeable boost to your credit score.
After applying and getting approved for a debt consolidation loan, many lenders will pay off your creditors directly. Then you repay the loan in monthly installments, usually with a lower, fixed interest rate than you were paying on your credit cards. Once a personal loan is paid off, the credit line is closed and you have no more access to it.
Before you make any decisions, use a free credit score simulator such as the one provided by CreditWise® from Capital One® to see that happens if you were to take out a new loan and pay off your credit card balance.
Using this free tool, you can enter hypothetical scenarios, such as taking out a $10,000 loan and/or paying off $10,000 of your current credit card debt, then watch as your score recalculates to estimate how it may improve with every financial decision. (You can also see what could happen in other hypothetical situations, like applying for a mortgage, taking out a car loan, letting your payments default, etc.)
Every consumer's credit score depends on multiple variables. There are no guarantees, but you may find that reducing your CUR will help you raise your credit score in under 30 days.
Select offers a widget where you can put in your personal information and get matched with personal loan offers without damaging your credit score.
When narrowing down and ranking the best debt consolidation loans, we focused on recommending loans with fixed-rate APR (meaning it doesn't go up and down), flexible loan amounts and terms, no early payoff penalties and no origination fees when possible. (Read more about our methodology below.)
Top personal loans for debt consolidation
Best for paying creditors directly
Happy Money
Annual Percentage Rate (APR)
11.72% - 17.99%
Loan purpose
Debt consolidation/refinancing
Loan amounts
$5,000 to $40,000
Terms
24 to 60 months
Credit needed
Fair/average, good
Origination fee
0% to 5% (based on credit score and application)
Early payoff penalty
None
Late fee
5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)
Terms apply.
Pros
- Peer-to-peer lending platform makes it easy to check multiple offers
- Loan approval comes with Happy Money membership and customer support
- No early payoff fees
- No late fees
- Fast and easy application
- U.S.-based customer service
Cons
- Higher loan minimums ($5,000)
- Must submit soft inquiry to see origination fees and other details
How Payoff is designed to help you stay motivated:
- Offers borrowers a dedicated "Empowerment Science" team that is available to take questions and provide encouragement
- Free personality tests, stress assessments and cash flow trackers to help borrowers understand their money management style and nail down better habits
- Free FICO tools help members track their progress*
*Based on a study of Happy Money Members between February 2020 to August 2020, members who use a Happy Money Loan to eliminate at least $5,000 of credit card balances reportedly see an average FICO Score boost of 40 points. (Results may vary and are not guaranteed.)
Best for student loan consolidation
SoFi Personal Loans
Annual Percentage Rate (APR)
8.99% - 29.49% when you sign up for autopay
Loan purpose
Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
Loan amounts
$5,000 to $100,000
Terms
24 to 84 months
Credit needed
Good to excellent
Origination fee
No fees required
Early payoff penalty
None
Late fee
None
Terms apply.
Pros
- No origination fees required, no early payoff fees, no late fees
- Unemployment protection if you lose your job
- DACA recipients can apply with a creditworthy co-borrower who is a U.S. citizen/permanent resident by calling 877-936-2269
- Can have more than one SoFi loan at a time (state-permitting)
- May accept offer of employment (to start within the next 90 days) as proof of income
- Co-applicants may apply
Cons
- Applicants who are U.S. visa holders must have more than two years remaining on visa to be eligible
- No co-signers allowed (co-applicants only)
Fixed rates from 8.99% APR to 29.49% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 02/06/2024 and are subject to change without notice. The average of SoFi Personal Loans funded in 2022 was around $30K. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.
Best for fair/average credit
Upstart Personal Loans
Annual Percentage Rate (APR)
7.8% - 35.99%
Loan purpose
Debt consolidation, credit card refinancing, wedding, moving or medical
Loan amounts
$1,000 to $50,000
Terms
36 and 60 months
Credit needed
Credit score of 300 on at least one credit report (but will accept applicants whose credit history is so insufficient they don't have a credit score)
Origination fee
0% to 12% of the target amount
Early payoff penalty
None
Late fee
The greater of 5% of last amount due or $15, whichever is greater
Terms apply.
Pros
- Open to borrowers with fair credit (minimum 300 score)
- Will accept applicants who have insufficient credit history and don't have a credit score
- No early payoff fees
- 99% of personal loan funds are sent the next business day after completing required paperwork before 5 p.m. Monday through Friday
Cons
- High late fees
- Origination fee of 0% to 10% of the target amount (automatically withheld from the loan before it's delivered to you)
- $10 fee to request paper copies of loan agreement (no fee for eSigned virtual copies)
- Must have a Social Security number
Best for consolidating debt while improving financial literacy
Upgrade Personal Loans
Annual Percentage Rate (APR)
8.49% - 35.99%
Loan purpose
Debt consolidation/refinancing, home improvement, major purchase
Loan amounts
$1,000 to $50,000
Terms
24 to 84* months
Credit needed
Fair, good to excellent
Origination fee
1.85% to 9.99%, deducted from loan proceeds
Early payoff penalty
None
Late fee
Up to $10 (with 15-day grace period)
Terms apply.
Pros
- No early payoff fees
- Loans up to $50,000
- Fixed interest rates (no surprises)
- Can pay creditors directly (may take up to two weeks)
- Fast funding in as little as four days
Cons
- Origination fee of up to 8% (deducted from your loan)
- Not available in Washington D.C.
Why Upgrade is the best for financial literacy:
- Free credit score simulator to help you visualize how different scenarios and actions may impact your credit
- Charts that track your trends and credit health over time, helping you understand how certain financial choices affect your credit score
- Ability to sign up for free credit monitoring and weekly VantageScore updates
Best for good to excellent credit
LightStream Personal Loans
Annual Percentage Rate (APR)
7.49% - 25.99%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Pros
- Same-day funding available through ACH or wire transfer (conditions apply)
- Loan amounts up to $100,000
- No origination fees, no early payoff fees, no late fees
- LightStream plants a tree for every loan
Cons
- Requires several years of credit history
- No option to pay your creditors directly
- Not available for student loans or business loans
- No option for pre-approval on website (but pre-qualification is available on some third-party lending platforms)
Best for joint applicants
Prosper Personal Loans
Annual Percentage Rate (APR)
8.99% to 35.99%
Loan purpose
Debt consolidation/refinancing, home improvement, auto/motor, medical or dental, big purchase and more
Loan amounts
$2,000 to $50,000
Terms
24, 36, 48, and 60 months
Credit needed
Good
Origination fee
2.41% to 5%, deducted from loan proceeds
Early payoff penalty
None
Late fee
5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)
Terms apply.
Pros
- Co-borrowers are permitted
- Repeat borrowers may qualify for APR discounts
- Option to change your payment date according to when works best for you
- Wide range of loan amounts
- No prepayment penalty
Cons
- High late fees
- Origination fee of 2.41% to 5.99%, deducted from loan proceeds
Read more
Our methodology
To determine which personal loans are the best for consolidating debt, Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions. When possible we chose loans with no origination or sign-up fees, but we also included options for borrowers with lower credit scores on this list. Some of those options have origination fees.
When narrowing down and ranking the best personal loans, we focused on the following features:
- Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan's term, which means your monthly payment won't vary, making your budget easier to plan.
- Flexible minimum and maximum loan amounts/terms: Each lender provides more than one financing option that you can customize based on your monthly budget and how long you need to pay back your loan.
- No early payoff penalties: The lenders on our list do not charge borrowers for paying off loans early.
- Streamlined application process: We considered whether lenders offered same-day approval decisions and a fast online application process.
- Customer support: Every loan on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
- Fund disbursement: The loans on our list deliver funds promptly through either electronic wire transfer to your checking account or in the form of a paper check. Some lenders (which we noted) offer the ability to pay your creditors directly.
- Autopay discounts: We noted the lenders that reward you for enrolling in autopay by lowering your APR by 0.25% to 0.5%.
- Creditor payment limits and loan sizes: The above lenders provide loans in an array of sizes, from $1,000 to $100,000. Each lender advertises its respective payment limits and loan sizes, and completing a preapproval process can give you an idea of what your interest rate and monthly payment would be for such an amount.
Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee your interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of 3 years would result in 36 monthly payments of $313.32.
