Debt Consolidation Loans, One Payment Instead of Many

Most unsecured debt qualifies:

• Credit cards and store cards
• Medical and dental bills
• Personal loans
• Payday and cash advance loans

Mortgages, car loans and federal student loans are usually handled differently, because they're secured or have their own repayment programs.

Most are unsecured, so you don't put up your car or home as collateral. Secured options like home equity loans can carry lower rates, but you're putting your home on the line if you fall behind.

Some lenders send the money straight to your creditors. Others deposit it in your checking account and you pay the balances off yourself. If it lands in your account, pay the debts off right away so the money doesn't get spent on something else.

• Your credit card or payday balances carry high APRs
• You're juggling several due dates and occasionally missing one
• Your income is steady enough to handle a fixed monthly payment
• You can qualify for a rate lower than the average you pay now

• The only offers you get are at or above your current rates
• You'd need to stretch the term a long way to afford the payment
• Your total debt is small enough to clear in a few months on your own
• You expect to keep using the cards you pay off

The upside is simplicity, a fixed payoff date and, often, less interest. The downsides are possible origination fees, a small temporary dip in your credit score from the application, and the risk of running balances back up. Knowing how personal loans compare with credit cards helps you judge which tool fits.

Stretch that same $3,000 loan at 13% over four years instead of two and the payment drops to about $80 a month. But total interest climbs to about $863, which is more than you'd have paid on the cards over two years. A lower payment isn't the same thing as a cheaper loan.

Some lenders charge an origination fee, taken out of the loan before you receive it. The APR includes it, so check the APR, not just the interest rate. Personal loan APRs from lenders in our network range from 5.99% to 35.99%, and terms run from 61 days to 72 months.

List each debt with its balance, APR and minimum payment. Add up what you pay each month and what you'd pay in total at your current pace. Then set that against the total cost of the consolidation loan over its full term.

If the offer only wins because the term is longer, you can still come out ahead by paying extra each month. Check that the loan has no prepayment penalty first, so you're free to pay it off early without a charge.

A full application usually means a hard inquiry, which can shave a few points off your score for a while. A brand-new account also lowers the average age of your accounts. Both effects tend to fade within months.

Paying off cards lowers your credit utilization, the share of your available credit you're using, which is one of the biggest factors in most scoring models. Then every on-time payment on the new loan adds to your payment history. Our guide to credit score ranges explains how those factors add up.

Not necessarily. Closing a card reduces your available credit, which can push utilization back up. Many people keep the account open and put the card away instead. If the temptation to spend is the bigger risk, closing it may still be the right call for you.

There's no single cutoff. Better credit usually means a lower APR, but many lenders work with fair and poor credit too, often at higher rates. If your score is on the low side, it's worth knowing how lenders look at bad credit, and a few steps can help you improve your credit score before applying.

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. Lenders use it to judge whether a new payment fits your budget, and a lower DTI tends to mean better offers. Our guide to understanding your debt-to-income ratio shows how to work yours out.

• Check your credit reports for errors before you apply
• Pay down a small balance or two to lower your utilization
• Borrow only what you need to clear the debts on your list
• Avoid the most common loan application mistakes, like applying to many lenders one by one

A balance transfer card can offer a low or 0% introductory APR for a set period, usually with a transfer fee. It works best for card debt you can clear before the promotional rate ends, and it usually needs good credit. We compare the two in detail on our credit card consolidation page.

Nonprofit credit counseling agencies can set up a debt management plan, where you make one monthly payment to the agency and it pays your creditors, often at reduced interest rates. There's no new loan, but you'll usually have to close the enrolled cards.

Credit unions often offer personal loans for consolidation at competitive rates, especially for existing members. Membership rules vary, so here's how credit unions work if you're not already a member.

These can come with lower rates, but they put your home or your retirement savings at risk. They're worth a careful look only if your income is very stable and the savings are large.

Settlement companies negotiate to pay creditors less than you owe. It can badly damage your credit, fees are often steep, and forgiven debt may count as taxable income. Be wary of anyone who charges upfront or promises results, and read our guide to spotting predatory lending first. If you're weighing high-cost short-term loans instead, see our list of cheaper alternatives to payday loans.

You fill in one short request with some basic details about you, your income and how much you need. We'll review your details and look for a suitable lending option. If you're approved, you'll see the lender's offer and can accept it or simply say no. If this is your first installment loan, our first personal loan guide explains what to expect.

You finish the lender's verification steps and sign its loan agreement, which spells out your rate, payment and payoff date. Funds are typically sent within one to a few business days. From then on, you deal directly with your lender.

Covero isn't available in every state, not everyone receives an offer, and the lender may run a hard credit check before funding. There's no cost to use Covero and no obligation to accept any offer.

When you're ready, you can start your request in a few minutes.