The Best Debt Consolidation Loans
To find the best debt consolidation loans, we looked at which online lenders offer fixed interest rates, reasonable APRs, and no hidden fees. Why online lenders? They usually have the freedom to lend on better terms than banks, plus pre-approval processes that only takes a few minutes. The exact terms you’re offered vary depending on personal factors like income, so we'd suggest shopping around among our six picks: All allow you to compare quotes without affecting your credit.
The Best Debt Consolidation Loans
If you’re balancing so many different payments that you have trouble keeping your due dates straight — or if your interest rates are hindering your ability to pay what you owe — consolidation can be a quick step towards simpler payments and lower interest rates. A debt consolidation loan is a personal loan that you can use pay off existing debts and then pay back, in turn, over a 2-7 year period.
Borrowing money is personal, so the exact rates and terms available to you depend greatly on your financial history. That’s why we have six picks for best debt consolidation lender. Each offers transparent pricing, reasonable APRs, fixed interest rates, multiple options for loan amounts and payoff periods, and no pre-payment fees — exactly what you want in a lender. They cater to a variety of credit scores: Prosper, Marcus, and Lending Club are right in the middle and good options for borrowers with credit scores in the mid-to-upper 600s. The average SoFi lender has a credit score of 700. Avant and Upgrade are willing to dip into the 620-580 range.
We recommend that you apply to multiple lenders to compare offers. Each company calculates its lending rates with in-house algorithms, so shopping around can help you find the loan with the best interest rate. Applying is easy. Each application takes less than 3 minutes, and lets you know immediately if you’re pre-approved, and at what rates. Most importantly, these companies only do a soft pull on your credit score at this stage — you won’t be dinged just for comparing pre-approval offers.
How We Found the Best Debt Consolidation Loans
We should pause here and mention that there’s no real difference between a “debt consolidation loan” and a generic personal loan. Banks and loan companies use this phrase as a marketing term, so that you can visualize how you’ll use the loan. And while banks and credit unions offer this kind of loan, we chose to focus this review on online lenders, for a few reasons.
Online lenders are better suited to offering personal loans than banks are. “To lenders, personal loans are the riskiest loans we do,” says Bill Dallas, co-founder and CEO of Cloudvirga. Banks are risk-averse, and unsecured personal loans, which don’t require you to put up collateral, don’t provide them the same recourse that secured loans do. “A bank has directors and board members, and they have very strict guidelines that they cannot change,” says Snowe Saxman, a success, wealth, and women’s expert. By comparison, online lenders are often self-regulated. We found that this translated to a simpler approval process. Being approved for a loan — and getting that money in your bank account — can happen a lot faster with an online lender (we’re talking hours and days, as opposed to weeks).
Online lenders are also widely available. Even though credit unions have more flexibility than banks, they are often region- or industry-specific, and we only wanted to recommend lenders available in at least 40 states.
You don’t have to be a member to get a loan. Brick-and-mortar banks often require you to become an account-holder before you take out a loan, an extra round of paperwork that’s not ideal if you’re trying to simplify your financial life. Some, like Wells Fargo, won’t even let you shop around online for a loan unless you have an active account.
If you already have a great relationship with a bank or credit union — or have heard good things about one by word of mouth — we absolutely recommend checking to see what kinds of loan it can offer you. Credit unions in particular have some great rates for those who qualify.
One of the best we found during our research was USAA, a military credit union that covers not just military members, but also their families — even down to grandchildren and beyond (provided that their parents have USAA insurance). Its APRs for debt consolidation loans max out at 10.99%, which only one other of our contenders (Western Credit Union) could match. Saxman, who has USAA car insurance, highly recommends it, along with the similar Navy Federal Credit Union.
First things first: The best debt consolidation loan will have the best terms, period.
No lender has one set of terms it gives everyone — it’s up to you to find which lender is best for your financial situation. The two major charges (APR and origination fee) fall within a range for each lender, with the exact percentage they offer you dependent on your credit score plus other factors like employment status and cost of living in your area.
In other words, even if Lender A advertises 5%–30% APR and Lender B offers 6%–36% APR, Lender A won’t necessarily end up offering you a better package than Lender B. Shopping around is crucial, and you’ll have to do your due diligence to figure out how much you’ll end up paying with each in the long term.
That said, all our top picks do have some key criteria in common.
Their APR range is somewhere between 5% and 36%.
Lenders run as a pretty tight pack when it comes to APR. Most fall between 5% and 40%, with the two most established contenders on our list, Prosper and Lending Club, leaning toward the high end with maximums of 36% and 34.4%, respectively.
The best rates will only be offered to borrowers with the strongest credit history, but having the option for a low APR is key — especially when you consider a lender like NetCredit’s APR starts at 34% and goes all the way up to 155%!
As you shop around for a loan, you will see both APR and interest rates advertised. These two attributes are related, but not the same. APR (short for annual percentage rate) is more comprehensive, including both your interest rate and your origination fee. Each loan is likely have different interest rates and origination fees, so APRs make it easier to compare two offers (think apples to apples, rather than two fruit salads with different grape-to-melon ratios).
Say you’re comparing two $5,000 loan options. One comes with 10% interest and a 3% origination fee. The other comes with 13% interest, but no origination fee. At a glance, it’s tough to know which one is a better deal. Knowing the APRs lets you make a one-to-one comparison. Lenders will provide you with an APR, but you can also calculate it yourself with a calculator like this one. When we enter the data for the options above, we can see that the first loan has an APR of about 12%. The second maintains its 13% APR. Provided other terms look good, the first is the better deal.
And their origination fees are between 0% and 6%.
Build your origination fee into your loan amount.A company that charges an origination fee can be the best deal in the long-run, but be aware that this charge is due upfront. If you don’t have the funds to pay it immediately, consider bundling the cost of the fee into your loan request.
Apart from interest, origination fees are the biggest charge you’ll encounter with debt consolidation loans. These are the administrative fees a lender charges — basically, the payment it takes for setting you up with a loan. Like APR, origination fees fall into a pretty tight clump among personal loans; most are in the 0%–6% range.
We thought about eliminating any lenders that included origination fees altogether, but only a few (including SoFi and Marcus, two of our top picks) don’t charge it. And, as you saw from the example above, a loan that includes an origination fee might still end up giving you a better APR.
Instead, we required their origination fees to cap at 6%. Upstart, previously one of our honorable mention, was disqualified at this stage thanks to an increase in their origination fee — they now reserve the right to charge as high as 8%.
They offer fixed interest rates.
Loans come in both fixed and variable interest rates and, as their name suggests, fixed is the more stable option. Fixed interest rates stay the same throughout the lifetime of the loan, while variable interest rates may start low, but can go up at an unpredictable rate (though they tend to be capped, so they won’t jump from, say, 6% to 155%).
For many, predictability is the safer way to go when you’re taking out a loan — there are no surprises you’ll have to suddenly fit into your budget.
While some lenders, like Prosper, Marcus, and Upgrade, only offer fixed rates, others offer both. Whether you are assigned one of these rate types or can choose depends on the lender: Avant will assign you to one or the other, for example, but SoFi allows you to specify one or the other in your loan application. Just make sure that when you compare interest rates, you’re comparing apples to apples, not a low but unstable variable rate to a higher but reliable fixed rate.
And they have a broad range of loan amounts and a variety of repayment plans to choose from.
There’s no such thing as the right debt consolidation loan amount or payback plan for everybody. We asked our experts whether it might be a red flag for a lender to offer a very low loan (Avant will let you borrow as little as $2,000) or a very high one (SoFi offers up to $100,000). They all said no.
“It’s all going to be relative to the person’s income and ability to repay, so there’s really no limit to it,” debt attorney Chad Van Horn told us. “If you’re making $500 or $600 a month, a $1,000 loan may seem like you’ll never be able to pay it off. But if you’re making $10,000 per month, it’s the $100,000 loan that may seem like you’ll never be able to pay it off.”
All our top picks offer two or three repayment period plans; three- and five-year repayment plans are the most common. But what really matters is whether you can afford to make your monthly payments and whether you’re comfortable with the final amount you’ll end up paying after factoring in your APR and hidden fees. Speaking of which…
Their “hidden fees” are reasonable — and they aren’t hidden.
In addition to the costs included in your APR, your loan will likely come with other small fees. These vary from lender to lender, but should be both fair and absolutely transparent. The most common are:
- Late and unsuccessful payment fees. These make sense — if you’re borrowing someone else’s money, you need to pay it back as agreed. They tend to be a mix of flat fees and a percentage of your loan amount, so pay close attention to that language. SoFi’s late fee is “the lesser of 4% of the payment due or $5,” while Lending Club asks for “the greater of 5% of the unpaid installment amount or $15.” Avant has a cool late-payment refund feature, which we’ll talk more about it a bit.
- Prepayment fees. Yes, you read that right. Prepayment fees are charges you incur with some lenders when you try to make a payment early — they are trying to make up for the interest they lose by you paying off your loan ahead of schedule. We made sure none of our top picks have this fee; it’s just too cruel.
- Check processing fees. These kick in if you prefer to pay by check rather than electronically. The highest fee we came across was from Peerform, which charges $15. Of our top picks, only Lending Club charges a fee ($7 per check).
Marcus by Goldman Sachs is the only lender we found that advertises no fees at all. In addition to having no origination fee, the company doesn’t charge late fees, unsuccessful payment fees, or check processing fees. But this doesn’t mean they’ll have the best rates — just that they make all their money through interest. So it’s still important to compare your quoted APR against offers from other companies.
And they let you know what rate you qualify for without affecting your credit score.
“The best way to find the best loan is to try a few different companies and actually go through the process of applying to see the official rate you would be getting,” says Erik Kroll, a certified financial planner with Hilltop Financial Advisors. “Then you can calculate the total cost of the loans — including any fees — and weigh your options by comparing the monthly payment, how long the loan will last, and how much total interest you’ll pay.”
If a lender isn’t FDIC-insured, that’s okay.Of our top picks, Marcus, Lending Club, and Avant are backed by the FDIC, but when we asked our experts whether this mattered, the answer was a unanimous no. While insurance from the FDIC is crucial for savings accounts, when you take out a loan, you’re not counting on a bank or company to safeguard your money. If your lending company goes out of business, another company will buy out its loans, and you’ll pay that new lender instead.
It’s great advice. The only problem? Because rates vary depending on your individual profile, you can’t simply check a price list. Shopping around for a loan requires you to hand over personal information and (this is the big one) have your credit checked.
There are two different ways that lenders can check your credit, and one is less intrusive than the other. A hard inquiry, or hard pull, can lower your credit score, whereas a soft inquiry, or soft pull, won’t. “A hard pull is the most definitive way to assess a borrower’s risk profile, while soft pull data is less complete and typically older info used for pre-qualification purposes,” explains Ben Woolsey, president and general manager of CreditCardForum.
Hard pulls are necessary for certain financial transactions, including officially closing the deal on a personal loan — you’ll suffer a hard pull eventually. But some (like LightStream or Rocketloans) require one at the very beginning of the process before you’re even able to see what rate you qualify for.
The issue is that hard pulls can signal that you’re desperate for credit and may be trying to spend beyond your means — and your credit score will drop by a few points. Granted, there’s an exception called “rate shopping,” which lumps all hard pulls within 45 days for the same kind of loan into one. But there’s always the chance that, after comparing rates, you’ll decide against taking out a personal loan. (Or, it may turn out that you don’t qualify for one at all.) In those cases, it’s better to walk away without having dinged your credit score for no reason.
"My advice to consumers would be to utilize soft pull options whenever possible, and understand their credit score and credit costs/options to the fullest extent possible before initiating any full applications that involve a hard pull."
We tried out the eight lenders that fit all our criteria.
We wanted to make sure that lenders that sounded great on paper were actually great in practice. So we explored websites, requested rate quotes, and called customer service to experience the process ourselves.
Our eight finalists for best debt consolidation loan:
- Best Egg
- Discover Personal Loans
All eight contenders did fairly well. Their websites were intuitive, and we could find what we needed without confusion or digging around. Their quote and loan-application processes were simple and straightforward. And all their customer service numbers got us connected to actual human representatives in less than a minute.
When it came to our conversations with those customer service reps, though, a handful of lenders stood out for both good and bad reasons. Online marketplace lender Prosper was especially great. Think of your favorite Trader Joe’s cashier — our rep asked us about our weekend plans and tells us just enough about themselves that we felt like we were having a friendly moment while also getting business done.
On the other end of the spectrum was Best Egg: When one of our testers asked for more information about why she didn’t qualify for a loan, they were quick to rush her off the phone, telling her that a decline letter would arrive by mail. To add insult to injury, that letter never came — and as of this writing, still hasn’t arrived.
Since money can be a deeply personal and anxiety-inducing topic for many people, we wanted to make sure the lenders we recommended would be respectful, no matter what news they’re delivering.
Our Picks for the Best Debt Consolidation Loans
Because loans are so personal and shopping around for the best rate is so important, we have six top picks, catering to a range of credit scores and risk profiles. Honestly, we like them all, but as mentioned earlier, it’s best to get multiple quotes to see which company is the best match.
The Best Debt Consolidation Loans at a Glance
|Minimum credit score|
|Unsuccessful payment fee|
|Late payment fee|
Best for Average Credit
Prosper is the oldest peer-to-peer lending group in America (founded 2005). With a credit rating requirement of 640, it’s right in the middle of our top picks for credit score. It’s most comparable to Lending Club (whom we’ll discuss in a minute) as they both have similar policies on origination fees, unsuccessful and late fees, and have nearly identical APRs.
We liked how, in addition to a friendly customer service agent, Prosper let us see clearly the reason our tester had been declined for a loan. This gives us some insight into whether it was a problem we could fix, either by building up our credit history, or finding a co-signer, rather than leaving us wondering what happened. Like most of our picks, Prosper’s pre-approval process is also extremely simple, asking for name, address, credit score and income, rather than more obscure categories like “taxable income” that showed up in some of our finalists’ sign-up boxes. Once you’ve entered your information and been pre-approved, Prosper lets you evaluate available loan options by payoff period, monthly payment, and loan amount to make sure you are happy with what you’re getting.
If, after you’ve done the math and compared your options, you choose to go forward with Prosper, you will need to complete the full application. From there, your anonymous loan request will go out to Prosper’s investors. If at least 70 percent of the amount you request is funded, you will receive a loan; only during this final handshake will Prosper do a hard check on your credit. You should receive your loan three to five days after that. If your loan isn’t funded 100 percent, or at all, you can reapply for another loan. There is no waiting period between applications and no maximum number of times you can apply — however Prosper states it does decline users that have submitted a previous application and were declined by the company in the last 120 days.
One thing to keep in mind — even if you have the right credit score to qualify, you still might not get approved for a loan. We discovered this firsthand: One of our testers who has an Excellent credit score was denied a loan from both Prosper and Avant. In its denial email, Prosper explained that her credit history indicates she had “too few open trades,” and shuttled her to a loan broker partner called AmOne to shop around for other options. AmOne said she was a good match for SoFi, but SoFi denied her loan request as well, and recommended she try Avant. Avant denied her and sent her back to AmOne, which again recommended SoFi. A whirlwind — and no loan.
Another tester was approved for Prosper, but denied by Avant. A third tester was denied by Prosper, but approved for Avant. Like we said, you’re going to need to shop around.
While Lending Club received a lot of media attention in 2016 (and not for any flattering reasons), the news affected investors more than borrowers. There was controversy over the ousted CEO padding reported loan volume and splitting loans to make them appear less risky to investors. For borrowers, not much has changed — the CEO has been replaced, and the company continues to offer the same services, although some analysis suggests that Lending Club might be raising their standards, becoming less willing to lend to people with very low credit scores.
We suggest that if you meet the minimum 660 requirement, you should at least see what sort of rate the company offers. The pre-approval process is as easy as Prosper’s, requiring just the basic address, birthday, and annual income. While they are the only company of our top picks to charge a check processing fee — it will cost you $7 each time you pay your bill with a check rather than electronically — their interest rates and fees are comparable to Prosper. Be aware of Lending Club’s origination fee, however, which can range all the way up to 6% (as opposed to Prosper’s 5%, or Marcus’s 0%). An APR calculator is the best way to see how origination fees will affect your overall costs.
Marcus by Goldman Sachs is relatively new to online lending, debuting in October 2016. Its minimum credit score, 660, matches Lending Club’s. Its minimum APR rate is higher than most of our picks (6.99%, versus Lending Club’s 5.99%), but averaging things out on the other end, the company’s maximum APR rate is also lower (23.99% versus Lending Club’s 35.89%), so that Marcus still falls well within the typical range of our top picks.
Where Marcus proves to be most interesting is its promise of “No fees. Ever.” They don’t charge origination, late, or unsuccessful payment fees. This doesn’t necessarily mean they’ll be the cheapest loan you can find — you’ll want to compare APR and interest rates as well — but it’s a nice perk and helps ensure that you know exactly what you’ll be paying each month. No need to worry about factoring these fees into your budget if you miss your payment window by a couple of days. We also appreciated their extremely courteous customer service. When we called to ask questions about our loan terms, we only had to wait a couple of seconds before being put directly through to a live representative.
Like our other top picks, Marcus’s pre-approval process can be completed in about five minutes and only requires to provide general background info, like income, credit score, and monthly housing costs.
Best for Poor Credit
Like Marcus, Upgrade is fairly new to online lending, opening its doors in April 2017. The company was begun by two of Lending Club’s original co-founders, Renaud Laplanche and Soul Htite, but caters to a lower minimum credit score — 620 — than our other picks (Avant, below, goes lower still). Upgrade plans for their service to double as a tool for improving financial literacy, with the New York Times reporting that the company has “free credit monitoring tools and online education” in the works.
That said, Upgrade is still quite young, and we weren’t bowled over by their current offerings. Their Credit Health Insights resource page is still being developed and is available only to current borrowers. There also isn’t an app yet, unlike Avant, below.
Apart from this in-the-works educational component, the company feels very similar to our other top picks. The pre-approval process is fast and straightforward. There’s a $10 late fee following a 15-day grace period, plus a $10 for unsuccessful payments.
At 580, Avant’s minimum credit score is a full 40 points lower than Upgrade’s, making it (theoretically) accessible to the 85 percent of Americans who can meet or exceed that benchmark (but like we discovered when our testers applied for pre-approval, more than pure credit score is taken into account). Avant also offers an app, to make it easier to view and manage your payments.
While Avant isn’t as free of fees as Marcus, we did appreciate its late fee forgiveness policy. If a borrower makes one late payment, but their next three payments are on time, Avant will refund the $25 late charge in most states, which is a great morale boost when you’re working hard to get out of debt.
Avant’s pre-approval form is slightly more robust than our other top picks, so budget a few extra minutes to fill it out. Among other things, Avant requires your Social Security number, inquires whether or not you own your home, and wants your specific monthly net income before it decides whether or not you’ll be approved. Once you’re approved for and sign off on a loan, you’ll get that hard credit check and could receive your loan as soon as the next business day, or up to a week at most.
Best for Excellent Credit
SoFi, short for Social Finance, was originally designed for student loan financing — and even though it has expanded its products to include personal loans and mortgages, its target demographic remains the same: individuals with high incomes, or recent grads that have high earning potential. The pre-approval application process includes questions about your alma mater, major, advanced degrees, and income. Like Avant, SoFi offers an app to help manage your repayments.
SoFi cherry-picks who it approves for loans, which can be frustrating if you’re denied, but the terms of the loan have the potential to be better than any of our other top picks. Even though SoFi doesn’t list a minimum credit score, we chatted with Laurel Toney from SoFi’s public relations team who confirmed, “SoFi borrowers generally have scores above 700.” But SoFi takes care of its customers: Its $5,000–$100,000 loan range and max 15% APR blow our other top picks out of the water.
The name Social Finance comes from the fact that SoFi actually has a networking component, complete with career coaching and in-person events. It clearly caters to the educated and financially ambitious, with features like an entrepreneur program and a specific MBA loan. It also has a feature called Social Comparison, which shows where you fit into the bigger picture of borrowers and lenders.
Another to Consider
Discover Personal Loans (the same company as Discover Credit Cards) has similar rates to our other picks, but we had a few reservations that kept it from joining the top six. We liked that Discover doesn’t charge prepayment, origination, or check processing fees, but it has the highest late payment fee of all our finalists: $39 — you’ll definitely want to make sure you don’t miss a payment.
Discover’s minimum credit score is 660, which means it should be a good option if you have average credit. However, NerdWallet reports that Discover’s borrowers have an average credit score of 747 (versus Lending Club's 699 average), which means that actually receiving a loan from Discover might be more competitive than it would be with our other mid-tier picks like Lending Club and Prosper. Still, if you're looking for additional options and meet the minimum requirements, it's worth a look. Be aware that Discover's pre-application process is fairly involved, requiring info like social security, occupation, length of employment, and savings account balances.
Did You Know?
You don’t have to calculate APR by hand.
If you want to compare several loan offers, calculating APRs by hand is possible but tricky. Instead, we’d suggest Bankrate’s Loan Comparison Calculator. It allows you to type in the numbers and rates you’ve been offered for up to three different loans. Once you’ve filled out the simple form (the data that you need should be included in your pre-approval quotes), the calculator will make a cross-comparison chart to show which loan offer has the lowest monthly payments, the lowest APR, and the lowest cost over time. It doesn’t take into account recurring costs, so if you are paying Lending Club with a check, you’ll need to mentally add their $7 check processing fee on top of the calculated monthly rate. But overall, it’s an easy tool to figure out which lender is making you the best offer.
Get creative with (resolving your) debt.
Debt consolidation loans are a useful tool, but if you’re trying to get your expenses under control, our experts also recommended other measures.
It’s not glamorous, but the first step to truly resolving your debt is figuring out how much money you have, and where it’s going. Shawn Tydlaska, a Certified Financial Planner at Ballast Point Financial Planning who works with clients to help resolve their debts, says that “The first step is writing down all your debts, putting down your current credit limits and interest rate, and then calculating your minimum payments and how much of your credit you’re using.” Tracking your interest rates, in particular, is key to figuring out whether you’ll benefit from grouping any of your unsecured debts under a single debt consolidation loan.
In addition to debt consolidation loans, there are other ways to take control of your debt. Both Shawn Tydlaska and Ben Woolsey, President and General Manager of CreditCardForum, suggested opening a new credit card — so long as it’s the right one. Many credit cards billed as “balance transfer” cards, have a 0% intro APR that typically lasts for one to two years. These cards usually have an initial transfer fee of about 3%, according to Woolsey, but if you can pay off your balances within the 0% intro APR promotional period, you’ll spend less than you would have with a debt consolidation loan.
What if I have bad credit and can't get approved?If you don’t have enough credit history, it’s difficult to get approved, either for a loan or a balance transfer card. Tydlaska advises getting a beginner credit card. They usually have a very low credit limit, and may have an annual fee, but they’ll help you build your credit so you can apply for a larger loan in the future.
For example, let’s say you owe $2,000 total If you were to take out a Prosper loan with an APR of 21% (the middle of its range) and pay it off over three years (its shortest payoff plan), you would pay $75.35 per month and accrue $712.60 in interest over time, making your total payment $2,712.60.
Now let’s say you transfer that same amount of debt to a balance transfer card, like our favorite, the Chase Slate card, which charges no balance transfer fee for the first 60 days. If you can pay off your balance within the 15-month 0% introductory APR period, you’ll need to make monthly payments of $133.33 for a total payment of exactly $2,000 — no added $700 interest.
Either of these options could be the right fit, but if you can afford to make that larger monthly payment, you’ll not only save in interest, but also be free of debt that much faster.
Unsecured loans come with limitations.
It’s important to note that unsecured loans are only meant for bundling other unsecured loans, like credit card debt, or bills like medical care and car repair. You might be able to consolidate some secured loans (like your car payments), too, but since secured loans generally have lower interest rates than unsecured ones, this might not be the best move.
And if you have student loans, be careful before you consolidate them with the rest of your debt. Student loans come with certain built-in features, like the option to defer or go into forbearance, not to mention forgiveness. If you consolidate them, you could lose all those benefits. If you’re still interested in consolidating, Marketplace recommends going straight to the Department of Education to figure out the best way to handle it.
Don’t be afraid to ask for help — or for better rates.
An even easier way to get some relief from your debt is to call your creditors yourself and let them know the position you’re in. Amazingly, these calls often do lead to a lower rate or even a postponed deadline. “It certainly never hurts to ask, as issuers have been known to lower interest rates or offer extended repayment terms to accommodate loyal customers who are unable to stay current with their accounts,” says Woolsey.
Saxman gives the same advice. “Let them know, ‘Hey, I’m falling behind.’ A lot of creditors will work something out for you,” she says. “Now, they may close your credit card in the process if you can’t make minimum payments, but that might be better in the long run.”
Similarly, Tydlaska suggests also simply calling up your current credit card company and asking for a lower interest rate. If you have a better offer from another credit card company, or a debt consolidation loan, they might lower your interest rates to keep your business.
Make a budget. Find out how much, exactly, you owe, and how much you can afford to pay toward reducing your debt each month. “I feel like people sometimes are not realistic with themselves and they don’t write down, ‘Okay every month I have X amount of money coming in and X amount of money going out,’” says Van Horn. “If you’re going to do one of these loans, you need a way to pay it off. The money can’t come from rent and it can’t come from your car payment. And if you can’t do it on your own because you’re not good with numbers, find somebody that you can trust to review the numbers with you.”
Tydlaska likes using the 50/30/20 method for calculating expenses. “Try not to spend more than 50% of income on fixed expenses, like rent, insurance, and your minimum payments,” he suggests. 30% should go towards day-to-day expenses like dining out, travel, and gifts, while 20% should be saved for the future, whether that’s your 401k or you’re saving up for a house.
Get some unbiased advice — preferably for free. “You definitely want to sit down and make a plan and speak to some kind of counsel because I see people whose first response is, ‘I want to file for bankruptcy,’ and that’s not always the right choice,” explains Saxman. You may already have your heart set on a specific option, be it debt consolidation or a home-equity line of credit. But before you commit, get a second opinion, and make sure you can trust that it’s an impartial one. Woolsey recommends checking out the nonprofit Consumer Credit Counseling Services, which offers both free and inexpensive credit counseling services and has local branches around the country.