Joint Debt Consolidation Loans: A Guide for 2024

Taking out a joint debt consolidation loan with your spouse or partner can be an effective way to streamline debt payments and potentially save money on interest However, joint loans come with unique considerations that borrowers should weigh before applying This comprehensive guide explains everything you need to know about joint debt consolidation loans.

What is a Joint Debt Consolidation Loan?

A joint debt consolidation loan allows two people to combine their debt and make one single monthly payment It works the same as an individual debt consolidation loan, except there are two borrowers responsible for repayment instead of one

Both borrowers’ finances and credit scores will be evaluated by the lender when applying. If approved, the loan proceeds can be used to pay off debts in both individuals’ names such as credit cards, personal loans medical bills, and more.

Joint consolidation loans often allow borrowers to qualify for lower interest rates and larger loan amounts compared to taking out individual loans. They can make managing finances easier for couples by streamlining multiple monthly payments into one.

Benefits of Joint Debt Consolidation Loans

Here are some potential advantages of joint debt consolidation loans:

• Lower interest rates: Lenders look at both applicants’ credit, so having an additional borrower with good credit can result in a lower rate.

• Borrow larger amounts: Joint borrowing allows for larger loan amounts by accounting for two incomes instead of one. This can allow borrowers to consolidate more debt at once.

• Easier to manage: There’s just one monthly payment to manage instead of multiple payments to different creditors. Automated payments can make it even simpler.

• May improve credit: Making consistent on-time payments can improve both co-borrowers’ credit scores over time.

• Share financial burdens: Joint borrowing distributes responsibility and can prevent one partner from taking on too much debt.

Drawbacks of Joint Debt Consolidation Loans

Joint lending also comes with risks:

• Both co-borrowers are liable: If one borrower fails to make payments, the other is still fully responsible. This can harm relationships.

• May worsen credit if missed payments: A default can damage both co-borrowers’ credit scores.

• Preapproval usually unavailable: Most lenders don’t allow joint preapproval, so each application requires a hard credit check. Too many hard inquiries can lower credit scores temporarily.

• Co-borrower falling out: If relationships go south, borrowers still share responsibility for repayment, which can turn messy.

• Debt temptations: Having access to larger amounts could lead some borrowers back into debt after consolidating. Financial counseling may help avoid this.

What Credit Score is Needed?

The minimum credit scores required for joint consolidation loans typically fall between 580 and 720. Each lender sets its own requirements.

Even if one applicant has excellent credit, approval is unlikely if the co-borrower’s score falls way below the minimum. The lowest score is usually the biggest factor in determining eligibility.

Here are typical minimum credit requirements from popular lenders:

• LendingClub: 600
• Lightstream: 660
• Discover: 660
• SoFi: 680
• Wells Fargo: 680
• PenFed: 700

Those with scores below 580 may need to build credit before qualifying for the best rates. An alternative is adding a cosigner with good credit instead of a joint borrower.

What Debt Can Be Consolidated?

Most unsecured debts in either co-borrower’s name can be paid off with a joint consolidation loan. Common examples include:

• Credit card balances
• Medical bills
• Personal loans
• Payday loans
• Debt owed to family and friends

For married couples, joint consolidation loans work well for combining “his” and “her” debt. Any debts solely in one spouse’s name can be repaid too.

Most lenders do not allow consolidating secured debts like auto loans or mortgages. These require maintaining the collateral.

How Much Can You Borrow?

Loan amounts for joint consolidation loans often range from $5,000 to $100,000 or more. The maximum depends on the lender, as well as:

• Credit scores of both applicants
• Income and debts of each applicant
• Loan purpose and repayment term

Qualified borrowers can sometimes get approval for a joint loan up to $40,000 or more, even with so-so credit, by applying with a partner who has excellent credit and income.

Getting preapproved without affecting your credit lets you compare potential loan amounts from multiple lenders.

What Interest Rates Are Offered?

Interest rates on joint consolidation loans typically range from around 5% to 36%, depending on each applicant’s credit profile. Having two borrowers with strong credit can result in lower rates compared to borrowing alone.

Here are some average APR ranges you can expect with different credit scores:

• Exceptional credit (780+): 5% to 15%
• Very good credit (700-779): 10% to 20%
• Good credit (680-699): 15% to 25%
• Fair credit (620-679): 20% to 30%
• Poor credit (below 620): 25% to 36%

The better your credit, the lower your interest rate will likely be. Comparing rates from multiple lenders helps find the best deal.

What Loan Terms Are Available?

Joint consolidation loan terms typically range from two to seven years. Longer terms have lower monthly payments but higher interest costs over the life of the loan.

A five-year repayment term is quite common for joint consolidation loans. It provides a good balance of affordable payments while limiting interest expenses compared to longer terms.

Short two- to three-year loans get repaid quicker but have higher monthly payments. These work best if you can afford the larger payment.

Consolidating debt with a seven-year term keeps payments low but ends up costing more in interest over time. Make sure to run the numbers for different term lengths.

How Long Does Approval Take?

Many lenders provide prequalification tools to estimate your chances of approval without a hard credit check. But actual approval times vary by lender.

With some online lenders like Lightstream and SoFi, borrowers can complete an application and get approved the same day. Funds may be deposited within one or two days after approval.

Approval can take longer when applying with traditional banks or credit unions. The process may require one to two weeks as they verify application details and documentation.

Going through a credit union you’re already a member of can sometimes speed up approval times versus applying with a new lender.

Tips for Getting Approved

Getting approved for the best joint consolidation loan rates involves diligence and preparation:

• Check credit reports: Make sure all information is accurate and work on improving any issues before applying.

• Compare multiple lenders: Each lender uses different approval criteria, so cast a wide net. Prequalifying lets you compare without hurting your credit.

• Provide all required documentation: Have pay stubs, tax returns, and any other required financial documents ready to send. Accurate documentation helps prevent delays.

• Consider credit counseling: Meeting with a nonprofit credit counseling agency shows lenders you’re committed to using the loan responsibly.

• Ask about discounts: Many lenders offer autopay and loyalty discounts to lower rates. Active duty military members and veterans also often receive rate discounts.

• Apply with the best-scoring borrower first: Start with whoever has the higher credit score when prequalifying and applying.

Alternatives to Joint Debt Consolidation Loans

Joint loans aren’t right for everyone. Here are a few alternatives to consider:

Balance transfer credit card: Transferring balances to a card with a 0% intro APR period avoids interest for 12 to 21 months. Just be sure to pay off the balances before rates rise.

Individual consolidation loan: Applying for separate loans leaves each borrower responsible for only their own debt. This limits individual risk.

Borrow from 401(k): Those with a 401(k) can take a loan against it and repay themselves over 5 years. However, it can be risky to tap retirement savings.

Debt management plan: Credit counseling agencies can negotiate lower interest rates and monthly payments with creditors. But these plans take discipline and several years to complete.

Debt settlement: Debt settlement companies negotiate lump-sum payoffs for a fraction of balances owed. But this damages credit and unpaid balances get taxed as income.

Weighing the Pros and Cons of Joint Consolidation

Joint consolidation loans offer unique benefits but also pose big risks if not managed carefully. Whether it’s the right option depends on your specific situation.

For married couples or life partners working toward shared financial goals, combining debts can make sense. But for unmarried couples or friends simply looking to save money on interest, the risks of joint borrowing may outweigh the rewards.

Be sure to carefully discuss ground rules for managing payments and debts together before moving forward with joint consolidation. Getting on the same page from the start helps ensure it’s a fruitful experience for everyone involved.