Best Personal Loans for Getting out of Debt

4. Peer-to-peer (P2P) lending

P2P platforms connect borrowers with individual investors. While similar to online lenders, some allow you to explain your situation.

Best for: Fair credit borrowers with compelling reasons for their debt.

Pros:

• Favorable terms for fair credit
• Fast online process
• Can explain circumstances

Cons:

• Origination fees (2-6%)
• Not available in all states
• High rates for lower credit scores

5. Debt consolidation specialists

Some lenders focus exclusively on debt consolidation and pay creditors directly on your behalf.

Best for: Those wanting lender-managed payoff or needing accountability.

Pros:

• Lender pays creditors directly
• Removes temptation to misuse funds
• Financial education resources

Cons:

• Higher rates than general loans
• Less flexibility
• Fewer options

6. Home equity loans

While not personal loans, home equity options offer lower rates by using your home as collateral.

Best for: Homeowners with significant equity, excellent credit, and absolute payment certainty.

Pros:

• Low rates (6-9%)
• Larger amounts available
• Possible tax deductions

Cons:

• Risk foreclosure if you can’t pay
• Substantial closing costs (2-5%)
• Converts unsecured to secured debt
• Longer terms may mean more total interest

Warning: Only consider if you have stable income, emergency savings, and proven financial discipline. Never gamble with your home.

What to look for in a personal loan

Now that you have a better understanding of the types of loans you can get to help manage your debt, let’s break down key characteristics you should consider before committing to one:

Interest rate and APR

The APR includes interest plus fees—the true borrowing cost. Your loan APR must be lower than your current weighted average rate to save money.

Fees and costs

Consider all expenses:

• Origination fees (1-6%)
• Late payment fees
• Prepayment penalties (avoid these)
• Application fees

Loan term length

Shorter terms (2-3 years):

• Higher monthly payments
• Less total interest
• Faster debt freedom

Longer terms (5-7 years):

• Lower monthly payments
• More total interest
• Extended debt period

Choose the shortest term you can comfortably afford.

Fixed vs. variable rates

Most personal loans offer fixed interest rates, meaning your rate and payment stay the same throughout the loan term. This predictability is valuable for budgeting and protecting yourself against rising interest rates.

Variable-rate loans start with a lower rate that can change based on market conditions. While you might save money initially, you’re gambling that rates won’t increase significantly. For debt consolidation, fixed rates are almost always the better choice because they provide stability and certainty.

Loan amount

Borrow only what you need to pay off your existing debts—no more, no less. Taking extra money “just in case” or for other purchases defeats the purpose of debt consolidation and puts you deeper in debt.

Calculate the exact total of the debts you want to consolidate, add any loan fees that will be deducted from your proceeds, and that’s your target loan amount.

Lender reputation

Research lenders thoroughly before applying:

• Read customer reviews on independent sites like Trustpilot or the Better Business Bureau
• Check for complaints with the Consumer Financial Protection Bureau
• Verify the lender is legitimate (scam loan sites do exist)
• Evaluate their customer service accessibility—can you reach a human when you need help?

Red flags include lenders who guarantee approval without checking credit, require payment before funding, or pressure you to act immediately.

How to qualify for the best loan

Once you’ve locked in on the right loan for your financial needs, here are a few considerations to keep in mind:

Credit score requirements

Credit scores significantly impact both approval odds and interest rates:

• Excellent credit (750+): Access to the best rates, often under 10% APR, with easy approval from most lenders
• Good credit (700-749): Competitive rates ranging from 10% to 15% APR, approved by most lenders
• Fair credit (650-699): Moderate rates from 15% to 22% APR, may require shopping around
• Poor credit (600-649): Higher rates from 20% to 30% APR, limited lender options
• Very poor credit (below 600): Very high rates (often 30%+ APR), may struggle to find approval, should consider alternatives

Some online lenders use alternative underwriting models that consider factors beyond credit scores, which can help those with limited credit history or lower scores.

Income and employment

Lenders want:

• Steady employment (two years ideal)
• Sufficient income
• Debt-to-income ratio under 40% (preferably under 35%)

Required documentation

Be sure to gather the following documents for your application:

• Government ID
• Proof of income
• Employment verification
• Proof of address
• List of debts to consolidate

Is a personal loan right for You?

A personal loan works best when:

• You can secure a lower rate than your current average
• You have discipline to avoid new debt
• You’ve addressed behaviors that created the debt
• You can afford the payment comfortably
• You’re committed to rapid payoff

Choose your loan type based on your credit profile: banks or online lenders for excellent credit, credit unions for fair credit, specialized lenders for extra accountability.

The bottom line

Remember that the loan itself doesn’t get you out of debt—it’s simply a tool that can make the process easier and potentially cheaper. Your commitment to changing spending habits, living within your means, and consistently making payments is what ultimately leads to financial freedom.

Take time to shop around, understand all your options, read the fine print, and choose a loan that truly serves your best interests. With the right approach, a personal loan can be the turning point that helps you leave debt behind for good.

There’s always JG Wentworth…

Do you have $10,000 or more in unsecured debt? If so, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include: 

• One monthly program payment 
• We negotiate on your behalf 
• Average debt resolution in as little as 48-60 months 
• We only get paid when we settle your debt  

If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?