Personal loans provide a flexible way for people to borrow money to pay for a variety of expenses or consolidate multiple debt balances. Debt consolidation works best when you can turn your multiple debt payments from multiple lenders into just one monthly payment with a lower interest rate. This helps you get more organized and potentially get out of debt a little faster.
A recent study by LendingTree gathered data regarding how borrowers with high credit scores and low credit scores tend to use the money from their personal loans, based on personal loan data from between April 2021 and March 2022.
The study revealed that the majority of high-score borrowers — 39.7%, to be exact — took out a personal loan to consolidate debt. The average amount they borrowed came out to be $19,991.
These high-score borrowers can actually take advantage of better interest rates since creditworthiness is a huge determining factor in the interest rate you receive for debts. A lower interest rate means you can save more money on payments.
Many financial experts actually recommend paying down debt to prepare for a recession since freeing up your lines of credit can allow you to afford more flexibility in the event of a job loss or salary reduction.
The best personal loan lenders for debt consolidation
Marcus by Goldman Sachs offers some of the best personal loans for debt consolidation since this lender makes the process as hands-off as possible. Once you apply for the amount of money you’ll need, you can have this lender send direct payments to up to 10 of your creditors. You’ll just need to provide the creditors’ name and payment information and amount of money you’d like to send and Marcus will take care of that transfer process for you.
Plus, if you’ve made 12 consecutive on-time monthly payments, you can earn a one-month period where you don’t have to make a payment and your balance won’t accrue additional interest.
LightStream is another solid option for debt consolidation, especially when you consider that this lender gives you as much as 144 months to pay back your loan. This can make it extremely flexible for those who would prefer a much smaller monthly payment in their budget. You can also apply for up to $100,000 with this lender.
Borrowers who sign up for autopay (to have their monthly payments automatically deducted from their bank account each month) can also take advantage of a 0.5% APY discount.
And even if you don’t have a good or excellent credit score, there are still some personal loan options available to you. Upstart typically accepts applicants with a FICO® score or VantageScore of 600 or above, however, this lender also considers those who have insufficient credit history. Just keep in mind, though, that if you are applying for a loan with a lower credit score, you’ll be subject to interest rates on the higher end of the lender’s APY range.
