How To Get A Debt Consolidation Loan In 5 Steps (2024)

If you’re paying off high-interest debt—especially credit card debt—you may be familiar with debt consolidation loans. You can use a debt consolidation loan to save money, get out of debt sooner or lower your monthly payment, but only if you know how to get approved for a debt consolidation loan. We’ll help you figure it out with this five-step process.

How To Get a Consolidation Loan

Debt consolidation combines debts under one new loan or credit line, and debt consolidation loans can be a good idea if you’re struggling to manage multiple high-interest payments. More specifically, credit card consolidation loans may offer better interest rates with fixed payments that are easier to manage than fluctuating payments on credit cards.

If you’re thinking about consolidating debt, below are the steps for getting a consolidation loan.

1. Check Your Credit Score

The credit score you need for a personal loan varies by lender. In general, your chances of getting a debt consolidation loan are better if you have a good credit score, usually defined as 670 or above by FICO.

In some cases, your credit report may have errors that are bringing your score down, so first, you’ll want to check your credit report to make sure everything is correct. Then check your credit score to see where you stand. Several credit card issuers let you check your score for free.

If your credit score could use some work, see what you can do to fix it. Many lenders share personal loan requirements online, which can help you find a loan that fits your credit profile.

2. Make a Debt Consolidation Plan

Before you apply for a debt consolidation loan, it’s important to know what you want to get out of it. Obviously, you’re looking to simplify your debt payments by combining them into one loan. But here are some other common reasons people apply, along with what type of loan you should look for in that case:

• You want to save money.Look for a loan with a lower rate so that more of your payment goes toward paying down the balance each month instead of the interest.
• You want to get out of debt sooner.Look for the shortest loan term length with payments you can afford. Of course, you can always pay more toward your debt at any time, but choosing a shorter term length forces you to make those payments.
• You want smaller monthly payments.Choose a longer term length. This will cost you more over the long run, but by spreading your payments out over time, each one will be smaller.

It’s a good idea to use a debt consolidation loan calculator to estimate what your options might cost you.

3. Find and Compare Debt Consolidation Loans

Now that you have an idea of what you’re looking for, you can target your search for lenders with loans that fit your needs. A wide range of consolidation loans exist, including debt consolidation loans for bad credit.

Check your rates and loan terms with as many debt consolidation loan lenders as possible. The more, the better since comparing options will help you find the best debt consolidation loans for which you can qualify.

There are many rate-shopping sites out there, and you can also check with individual lenders directly, such as credit unions, banks or online lenders. Many lender and loan marketplace websites have personal loan pre-qualification forms you can fill out to get personalized rate quotes with just a soft credit inquiry that won’t affect your credit.

4. Apply for Your Loan

The process of applying for a personal loan can be straightforward. To verify your income and identity, you’ll usually have to supply documents like your most recent pay stub, past tax returns, bank statements, or your personal ID, such as a copy of your driver’s license.

Most lenders only take a few minutes to review your application and qualify you, but if they need additional documents, it can take a few days. It’s a good idea to keep an eye out for any emails or phone calls from your lender during this time in case it needs anything. This can speed up the approval process so you can get your answer sooner.

5. Repay Your Loan

Once you’ve been approved, it’s a good time to enroll in autopay so you don’t run into any late payment fees or damage your credit from a late payment mark on your credit report.

It’s also a good time to keep yourself from going into debt in the future. Not everyone goes into debt through faults of their own (hello, medical bills and low wages). But if you could do a little better with saving more and spending less, it’s crucial to work on those areas so that you don’t have another pile of debt by the time you pay this loan off.

Tips for Managing Debt Consolidation Loans

It’s one thing to apply for and qualify for a debt consolidation loan, but it’s another thing to manage that loan responsibly. Here are five tips to help you understand and manage your new loan:

• Understand personal loans.Most debt consolidation loans are personal loans. These are simple, lower-interest loans with a fixed term length. But if you don’t mind a bit more complexity, you could also consider a 0% intro APR credit card, a HELOC or a home equity loan.
• Learn any additional loan features.Besides the APR, it’s also a good idea to look at other features lenders might offer. For example, some lenders pay off your old debt for you, so you don’t have to do that step yourself.
• Continue paying your old loan until it’s clear.Once you or your new lender pays off your old debt, wait until you hear from your old lender that you have a zero balance. Payments might take a few days to process, after all. If you accidentally overpay, you’ll get the money back.
• Set up autopay.Managing your loan is a lot easier when you enroll in autopay. This will ensure that you never miss a payment, leaving you free of late payment penalties, such as fees or negative marks on your credit report

Frequently Asked Questions (FAQs)