Step-by-Step Checklist to Getting a Consolidation Loan (2024)

Understand How Consolidation Loans Work

The concept is simple: You apply for a debt consolidation loan and use the money from the loan to pay off your other debts, often credit card accounts. Despite the name, consolidation loans don't require consolidating debt from multiple credit accounts. You can use them to pay off just one credit card. Some lending partners will send the loan proceeds to your creditors directly; others send it to you, and you'll be responsible for paying off your creditors.

You'll pay off the loan in fixed monthly installments. If you do have debt from multiple sources, consolidation loans simplify repayment by giving you just one due date, payment amount and interest rate to keep track of.

Use this step-by-step checklist to find the right consolidation loan and get approved.

Decide if a Consolidation Loan Is Right for You

A debt consolidation loan might be right for you if:

• You have a lot of high-interest debt and are having trouble making the monthly payments.
• Your high-interest debt will take years to pay off. (If you could pay off your credit cards in 12 months or less, a balance transfer credit card offering an introductory 0% APR promotion could be a better choice.)
• You can get a loan at a lower interest rate than your current high-interest debt.
• Getting a loan will reduce your total monthly payment due to a lower interest rate, longer repayment term or both.
• You're committed to paying off the debt and reducing spending so you don't get into debt again.
• You can afford the monthly payments. Unlike credit cards, you can't pay less when money is tight.
• You have good credit. You typically need a FICO^® Score^☉ of 670 or higher to get favorable loan terms. You can get a debt consolidation loan with poor or fair credit, but it's likely to have a higher interest rate.

Prepare to Apply for a Consolidation Loan

• Check your credit score to see if it's high enough to qualify for a debt consolidation loan.
• Review your credit report for inaccurate information; if necessary, file a dispute with the credit reporting agencies to have any inaccuracies removed.
• If your credit score is poor or fair, work on improving your credit before applying for a debt consolidation loan.
• Figure out how much money you need. This could be as simple as adding up the balances of credit card accounts you'd like to pay off at a lower rate.
• Review your budget to decide what monthly payment you can afford.

Look for a Consolidation Loan

Debt consolidation loans are simply personal loans used to pay off debt. Some lending partners advertise them as "debt consolidation loans," but you can also just look for "personal loans."

• Start with the bank or credit union you already use and find out what options you may have there and at what interest rate. That shouldn't be the only place you look, however.
• Check with online lending partners, which may offer cheaper options.
• Look for lending partners that offer loan prequalification using a soft credit check. This allows you to compare interest rates without lowering your credit score the way a hard inquiry can.

Whether you have fair or good credit, you can find debt consolidation loans from various providers who have partnered with Experian. You can sort by your credit score range to see what loan providers are available and once you've signed up, you can see your loan offers based on your credit profile and even get prequalified.

Select the Right Consolidation Loan

When comparing loan offers, consider the following:

• Does the lending partner offer the loan amount you need? Some lending partners have loan minimums; avoid borrowing more than necessary.
• Can you afford the monthly payments? A longer loan term can lower your monthly payments, but you'll ultimately pay more in interest than with a shorter term.
• Can you get prequalified and receive estimated loan amounts and interest rates?
• Is there an origination fee when you receive the loan?
• Is there a prepayment fee for paying off the loan early?
• Is the interest rate fixed or variable? Fixed-rate loans have the same monthly payment for the life of the loan. Variable rates often start lower than fixed rates, but if interest rates rise, your payments will rise too.
• Use our personal loan calculator to compare loan offers and see the total interest you'll pay.

After Your Loan Is Approved

• If the lending partner sends the loan money directly to your creditors, keep making minimum payments until you're sure the money has been applied to your balances.
• After you pay off your credit card, keep the account open and only use it for small purchases you pay off every month. This will help keep your credit utilization ratio low and can improve your credit score.
• Set up free credit monitoring to watch how paying down debt affects your credit score.

What to Do if Your Loan Application Is Denied

• If you were denied despite relatively good credit, try applying for a smaller loan amount or with a lending partner whose credit requirements are more flexible.
• Use the debt avalanche or debt snowball method to pay off high-interest credit card balances. You may pay more interest than you would with a personal loan, but you'll have a plan you commit to to pay off your debt.
• Make a budget to get your spending under control.
• Consult a credit counseling agency to get advice and help paying down debt or possibly try using a debt management plan (DMP).