Find the right debt consolidation loan

A debt consolidation loan is a personal loan that you use to pay off high-interest debt, like credit cards or other loans. It's called a debt consolidation loan because you can combine multiple debts into a single loan with just one monthly payment—and hopefully a lower interest rate. That can simplify your debt repayments and save you money over time.

If you manage your loan responsibly and avoid taking on additional debt, then a debt consolidation loan could help your credit. Here's how:

• More on-time payments. If you consolidate multiple payments into one, it might be easier for you to keep track and pay on time. Making your payments on time is one of the most important steps you can take for better credit.
• Reduced credit utilization. Credit utilization is the percent of your available revolving credit that you're using. (For example, if you have a $1,000 balance on a credit card with a $2,000 limit, your utilization rate is 50%.) It's good to keep this below 30% for each credit card you have. When you pay off a credit card with a debt consolidation loan, it drops your credit utilization for that card to 0%, which can help your credit scores.

Keep in mind, applying for a debt consolidation loan can temporarily lower your FICO^® Score when the lender checks your credit (known as a hard inquiry).

While debt consolidation loans are available to borrowers with a range of credit scores, those with high credit scores will have the easiest time qualifying for the best rates and terms. Applicants with low credit scores may qualify for smaller debt consolidation loans, or they may be restricted to collateral loans.

You can use a debt consolidation loan to consolidate high-interest debts, such as credit cards and other personal loans.

Debt consolidation loan interest rates range from about 6% to 20%. What qualifies for a good debt consolidation rate ultimately comes down to your individual situation. Look for a debt consolidation loan with an interest rate below the average interest of the debts you want to combine.

Debt consolidation has a lot of benefits when done well. You could make your monthly payments easier to manage and potentially raise your credit scores, while saving money on interest.

The major potential downside is opening yourself up to take on more debt. Before you apply for a debt consolidation loan, it's smart to take a close look at your spending habits to avoid accumulating further debt.

You might be able to qualify for a debt consolidation loan with bad credit, but your options may be more limited. Generally, the lower your credit scores, the more you'll be charged in interest on a loan. Consider getting a secured loan or working with a lender who specializes in debt consolidation loans for low credit.

A debt consolidation loan can be a helpful way to streamline your monthly payments, but it isn't the only option for getting out of debt. Here are some other options for consolidating debt:

• Pay off debt with the debt snowball or debt avalanche method
• Sign up for credit counseling
• Use a balance transfer credit card
• Tap into home equity
• Consider debt settlement