.<\/strong> Lenders look at your credit to decide whether to approve you and what rate to offer. Most of the best rates go to borrowers in the good-to-excellent range (roughly 670 and above). If your score is lower, you can still qualify with some lenders, but you\u2019ll likely pay a higher rate. You can get your credit reports for free at AnnualCreditReport.com, and many banks and card issuers show your score in their apps.<\/p>\n\n\n\nWhile you\u2019re reviewing your reports, watch for errors. A balance that isn\u2019t yours, or a payment marked late that you actually made on time, can pull your score down. If you find a mistake, file a dispute with the credit bureau. Fixing it before you apply could help you qualify for a better rate.<\/p>\n\n\n\n
Your full list of debts.<\/strong> Make a simple list of everything you want to consolidate, including:<\/p>\n\n\n\n\nThe name of the lender or card<\/li>\n\n\n\n The current balance<\/li>\n\n\n\n The interest rate (APR)<\/li>\n\n\n\n The minimum monthly payment<\/li>\n<\/ul>\n\n\n\nAdd up the balances and the monthly payments. This is your baseline, the number any new loan has to beat.<\/p>\n\n\n\n
Then work out your debt-to-income ratio (DTI)<\/strong>, which is your total monthly debt payments divided by your gross monthly income. If you earn $4,500 a month before taxes and $1,500 goes toward debt, your DTI is about 33%. Many lenders prefer a DTI under roughly 40%, but the cutoff varies.<\/p>\n\n\n\n<\/span>Step 2: decide how much you need to borrow<\/strong><\/span><\/h3>\n\n\n\nStart with the total of the balances you plan to pay off, then think through a few more things.<\/p>\n\n\n\n
Fees.<\/strong> Many lenders charge an origination fee, which is a percentage of the loan amount that\u2019s subtracted from your funds. That means you may need to borrow more than $15,000 to actually receive $15,000. Always ask what you\u2019ll net.<\/p>\n\n\n\nA payment you can really afford.<\/strong> Take an honest look at your monthly budget. A lower payment is tempting, but it usually comes with a longer term, and a longer term means more interest. Aim for a payment that fits your budget and a term short enough to keep your total cost down.<\/p>\n\n\n\nYour loan term.<\/strong> Here\u2019s a quick summary:<\/p>\n\n\n\nLoan term<\/strong><\/td>Monthly payment<\/strong><\/td>Total interest<\/strong><\/td><\/tr>Shorter (2 to 3 years)<\/td> Higher<\/td> Lower<\/td><\/tr> Longer (5 to 7 years)<\/td> Lower<\/td> Higher<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nIt\u2019s also tempting to borrow a little extra \u201cjust in case.\u201d Try not to. The goal is to get out of debt, and borrowing more works against that.<\/p>\n\n\n\n
<\/span>Step 3: compare lenders and prequalify<\/strong><\/span><\/h3>\n\n\n\nGetting quotes from at least three lenders before you apply is the best way to save money on a debt consolidation loan, and it\u2019s the step most people skip. You can find these loans from several types of lenders:<\/p>\n\n\n\n
\nBanks.<\/strong> A decent place to start if you already have an account, since some offer rate discounts to existing customers or for setting up autopay.<\/li>\n\n\n\nCredit unions.<\/strong> They often have lower rates and more flexible approval standards, especially if your credit is fair. You usually need to be a member, but joining is often easy.<\/li>\n\n\n\nOnline lenders.<\/strong> Simple applications, fast decisions, and a wide range of credit profiles considered. Funding can be quick, sometimes within days.<\/li>\n<\/ul>\n\n\n\nWhen you compare offers, look beyond the headline interest rate.<\/p>\n\n\n\nWhat to compare<\/strong><\/td>Why it matters<\/strong><\/td><\/tr>APR<\/strong><\/td>Includes interest and certain fees, so it\u2019s the best way to compare loans side by side<\/td><\/tr> Origination fee<\/strong><\/td>Reduces the money you actually receive<\/td><\/tr> Loan term<\/strong><\/td>Changes your monthly payment and your total interest<\/td><\/tr> Prepayment penalty<\/strong><\/td>You should be able to pay off the loan early without extra charges<\/td><\/tr> Direct payment to creditors<\/strong><\/td>Some lenders pay your old accounts for you, which helps you stay on track<\/td><\/tr> Funding speed<\/strong><\/td>Important if you have due dates coming up<\/td><\/tr> Hardship options<\/strong><\/td>Some lenders offer help if you hit a rough patch<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nWhat makes comparing easy is prequalification. Most lenders let you check your likely rate and terms with a soft credit inquiry, which does not affect your credit score. Prequalify with three to five lenders, line up the offers side by side, and compare the total cost of each loan, not just the monthly payment.<\/p>\n\n\n\n
A heads up: prequalified offers are estimates. The final rate can change after the lender completes its review.<\/p>\n\n\n\n
<\/span>Step 4: apply and submit your documents<\/strong><\/span><\/h3>\n\n\n\nOnce you\u2019ve chosen the offer you want, you\u2019ll submit a formal application, which usually includes a hard credit inquiry<\/strong>. This can cause a small, temporary dip in your score, which tends to recover as you make on-time payments.<\/p>\n\n\n\nLenders often ask for:<\/p>\n\n\n\n