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How to Reduce Interest on Your Debt Consolidation Loan [2022]

January 3, 2022

Reducing the interest rate on your debt consolidation loan won’t only save you money, it also might be easier than you think. In my own debt-free journey, I went through the whole debt consolidation process myself, so I can tell you what to do to find the best rate.

Here are the four best ways to get a better rate on your debt consolidation loan.

4 Things You Can Do to Reduce Your Interest Rate

1. Work on Your Credit Score

The best thing you can do before applying for a loan of any kind is to work on your credit score. To increase your odds of qualifying for a debt consolidation loan, you want your credit score to be at least 580. If it’s above that, then the higher it is, the better the potential rate you’ll be able to get on your loan.

There are five credit score ranges that your score can fall into. While the interest rate you get on a debt consolidation loan will depend on more than purely credit score, here’s a quick breakdown of the range of rates you can expect to find:

Score Category Credit Score Range Expected Interest Rates
Exceptional 800 – 850 7% – 12%
Very Good 740 – 799 7% – 12%
Good 670 – 739 10% – 17%
Fair 580 – 669 19% – 24%
Poor 300 – 579 25%+ (or disapproval)

As you can see from this table, the interest rates vary greatly depending on your credit score. In most cases, the higher scores within each category will lead to the lower rates within each range.

Also of note is that the top two categories have identical estimated interest rates. That’s because when your credit score gets up to around 740 or higher, you’re going to get some of the best rates available.

To help you get started, here are some quick tips on how to increase your credit score:

  • Make all payments on time.
  • Pay down as much debt as you can to reduce your utilization rate.
  • Refrain from opening any new accounts.
  • Check your credit report for any errors in your credit history.

If you do these four things, your credit score can improve significantly in just a few months. It might save you thousands of dollars in the long run, so it’s definitely worth it.

2. Have a Good Debt-to-Income Ratio

Lenders will also look at your debt-to-income ratio to make sure that you will be able to make the payments on your debt consolidation loan. This ratio is your total monthly debt divided by your monthly income, and it’s presented as a percentage.

If you have too much debt or not enough income, lenders might inflate your interest rates, or not even offer you a loan to begin with.

Ideally, you want your debt-to-income ratio to be 35% or lower. The lower it is, the better. If you’re able to pay off some of the debt first or increase your income, you’ll likely be able to get a better rate.

3. Apply for a Fixed-Interest (Not Variable) Debt Consolidation Loan

While you’re looking for a debt consolidation loan online, you’ll most likely end up getting all sorts of offers from various lenders. Among these offers, you’ll find that some have fixed interest rates, while others have variable interest rates.

A fixed interest rate stays the same for the life of the loan, so you know exactly how much you have to pay. Variable interest rates change based on the market and a certain benchmark. This can be good or bad, depending on what the market does.

Variable interest rates are more difficult to accurately budget for since the payments can change from time to time, and you could end up paying more in interest than with a fixed rate.

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4. Shop Various Lenders for the Best Interest Rate

When it comes to debt consolidation loans, you never want to blindly accept the first offer you get. Your business is valuable, and different lenders will compete to make sure they land you as a client.

Sites like LendingTree and Credible will show you offers from multiple lenders within minutes, and let you easily compare loans to make sure you’re getting the best terms. Don’t be afraid to tell one lender what offer you got from another lender. They just might be willing to beat those terms!

Compare Loans on Credible

The Best Lenders for Debt Consolidation Loans

Now that you have a better idea of how to reduce your interest rate, here are a few of the best lenders out there for debt consolidation loans.

1. LendingTree

LendingTree is an online loan marketplace, offering a wide variety of financing solutions, including debt consolidation loans. The application process is quick and easy. All you’ll have to do is fill out an online form, and within minutes, the site will present you with all your options.

LendingTree makes it easy to compare up to 10 different loan offers side-by-side to see which one offers you the best terms and rates. In general, you want to find the best interest rate with the most flexibility in the payback period.

Using LendingTree, you can find a debt consolidation loan for up to $100,000 with interest rates ranging from 5.94% to 35.99%, depending on your credit score and other factors.

Read more in our in-depth LendingTree review.

Compare Loans on LendingTree

2. Credible

Like LendingTree, Credible is an online loan marketplace that has a network of 17 different lenders. Once you fill out the application form, you can see debt consolidation loan offers within minutes and easily find the best option.

With its network of lenders competing to give you the best rates and terms they can, Credible offers a Best Rate Guarantee on all debt consolidation loans. So if you’re able to find a better rate elsewhere, the site will give you $200 to make up for it.

If you apply for a debt consolidation loan on Credible, you’ll be able to potentially borrow between $600 and $100,000 with rates starting as low as 5.99%.

Find out more in our expert Credible review.

Compare Loans on Credible

3. National Debt Relief

National Debt Relief’s site isn’t as quick and easy to use as the two I’ve already discussed. Rather than filling out a quick form and seeing offers from multiple lenders in just a few minutes, it’ll take a little more time and effort here.

After you provide your name, phone number, email, and the amount of debt you have, National Debt Relief will contact you with a quote. The representative will work to get you as good of a deal on the loan as they can in an attempt to earn your business.

With National Debt Relief, you can get a debt consolidation loan for up to $100,000 or more and with interest rates as low as 4% (if you use a home equity loan) and terms of 2-5 years.

Learn more in our full National Debt Relief review.

Get Started with National Debt Relief

4. Freedom Debt Relief

The Freedom Debt Relief site is not as polished as LendingTree or Credible, but it does still get the job done. Right from the homepage, you can fill in information about the amount of debt you have, if you’re behind on your payments, and other personal details.

Once you fill out the form, a representative will get in touch with you to go over your options and see what the company can offer you in terms of amount, interest rate, and terms. With the ability to help with up to $100,000 in debt, Freedom Debt Relief should be able to help you consolidate most non-mortgage debts that you have.

Find out more in our Freedom Debt Relief review.

Get Started with Freedom Debt Relief

The Bottom Line

The higher your loan, the more significant the interest rate becomes. That’s why it’s so important to do everything you can do to find the best rate possible. You could be looking at thousands of dollars in savings, if not more, over the life of your loan.

To get the best rate you can, make sure you improve your credit score, have a low debt-to-income ratio, apply for a fixed-interest loan, and shop various lenders to make them compete for your business.

Compare Loans on LendingTree