Debt Consolidation Loans
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How to Get a Personal Loan for Debt Consolidation
It is all too easy to let debt grow and end up playing catch-up. Credit cards are often the biggest cause simply because they are such a flexible way of borrowing. Can’t pay it all off this month? Never mind, I’ll pay the minimum and pay the rest next month. Gradually the amount you owe rises and before you know it you have a problem.
Even if the amount you owe remains manageable and you have a plan in place to repay it, credit cards are no means the cheapest way to borrow money. A debt consolidation loan can be a good way of managing your debt burden, reducing the interest, and getting your finances back on track.
Applying for a personal loan for debt consolidation is fast and easy:
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What is a debt consolidation loan?
A debt consolidation loan is a personal loan, and it can be a great way to consolidate your debts into one easily managed account. Say you have 5 credit cards each with a large balance and varying interest rates, you can get a personal loan for that amount and pay off each card.
This means you not only likely reduce your interest rate, but you also consolidate all that debt under one loan – a loan that will be fully paid off within the loan term. This means that instead of carrying your credit card balances from one month to the next, you’ll know with certainty that you’ll pay off all your debt within that time frame by paying one payment each month.
Which lenders offer debt consolidation loans?
✔ Minimum Credit Score: 550
✔ APR: 9.95 - 35.95%
✔ Loan term: 2 - 5 years
✔ Funding turnaround: within 24 hours in most cases
With Avant personal loans, borrowers with fair to good credit scores can get access to super fast funding up to $35K. Best for debt consolidation.
✔ Minimum Credit Score: 640
✔ APR: 5.99 - 29.99%
✔ Loan term: 3 - 5 years
✔ Funding turnaround: 1 - 3 business days
With Best Egg personal loans, borrowers with fair to good credit can get funding for 3-5 years and have the option to use the loan for a variety of purposes.
✔ Minimum Credit Score: 660
✔ APR: 5.99% - 24.99%
✔ Loan term: 3 - 7 years
✔ Funding turnaround: within 24 hours
With Discover personal loans, borrowers can apply up to $35K in funding as fast as next business day. Best for those who want to consolidate debt and have a good credit score.
How does debt consolidation work?
Most Americans have 3-4 credit cards plus other credit accounts and keeping control of all of them can be like difficult. Taking out a debt consolidation loan allows you to clear all those card accounts and allows you to make a single monthly payment that will reduce your debts to zero in a fixed period of time. You take out a personal loan and use the money to pay off the balance on each card.
What are the benefits of consolidating your debt?
- The management of a single loan is far easier than organizing the payment of three or more credit accounts.
- Although credit cards are the simplest form of borrowing they also tend to be the most expensive. Consolidating what you owe with a personal loan will reduce the amount of interest and probably lower your monthly outgoings.
- Having a plan for reducing your debts reduces anxiety and usually helps your credit score.
- You know with certainty that you’ll have your debt paid off by a certain date.
- You don’t have to put as much thought into how to get debt free.
What kind of debt can I consolidate?
You can consolidate:
- Credit cards
- Store credit
- Medical bills
- Student loans
- Smaller personal loans
- Loans from friends and family
- Workplace loans
Essentially, if you can pay it off early, you can use your debt consolidation personal loan to pay it off.
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What are my options for debt consolidation?
- Personal loan: This is the most popular option. You can take out a personal loan for almost anything including debt consolidation. Occasionally loan providers make a special case of debt consolidation loans, paying the money directly to the companies you owe money to. Interest rates are often relatively low (5-15%) and are paid back over 3 – 7 years on average.
- Home equity loan: In this case, the loan is guaranteed by the amount of equity you have in your home. Most lenders will offer you up to 85% of that figure so a home equity loan is often a good option for those who have paid off much of their mortgage or whose home has risen in value. A home equity loan usually carries a lower APR than many other forms of finance because the loan provider knows that their money is safe.
- 401(k) loan: Many people take advantage of the 401(k) plan offered by their employers and it is possible to use this as a source for a consolidation loan. It is a convenient form of borrowing and the interest paid goes back into your 401(k) plan. However, if you lose the job or change employer while still owing money there is a limited period in which to pay off the entire sum and there may be tax implications too, so do your research.
- Balance transfer: Many credit card providers offer balance transfer accounts where you can clear the debts on one or more cards and pay a lower interest rate – typically 3-5%, sometimes even 0%. On the plus side, a balance transfer card is a cheaper form of borrowing as long as you pay off the debt within the introductory period. If you fail to do that you may find the interest very expensive. This option is usually only available to those with Good or Excellent credit scores.
Will consolidating my debt help me pay off my bills faster?
Debt consolidation will clear your immediate debt but you will still owe the money to the loan provider. The time needed to clear the new loan will depend upon which type of consolidation you choose and maybe five years or even more. The main plus points are that your debt is under control, the borrowing is less expensive, and there is a fixed endpoint. Make sure whichever loan you choose allows you to pay off your loan early without any fees so you can do so without penalty.
Should I get a personal loan to consolidate my debt?
If you have a FICO credit score of 670 or more, a personal loan may be the best choice for debt consolidation. While loans are available to those with low and fair credit scores a good credit score should guarantee you a more favorable interest rate. With APRs for credit cards in the mid to high teens, a low-interest rate will help you meet the regular payments and probably reduce your monthly outgoings.
While credit cards operate as a rolling line of credit, thereby offering the possibility of constantly being in debt, a personal loan means that you have a fixed date in the future when you will be debt-free.
However, for any consolidation loan to work for you, you also need to stop using the original cards and change your spending habits. It is no use clearing your cards only to rack up more debt.
Should I get a debt consolidation loan to pay off my debt?
Before applying for a debt consolidation loan you should consider the following:
- Do you have a good credit score? While a good credit score is not mandatory for debt consolidation it does mean you will be able to take advantage of credit at the lowest interest rates. With a low or fair score, you may be saddled with high-interest rates that effectively make the monthly repayment impossible.
- Are your debts high-interest? If your debt is high interest, as most credit card accounts are, then you could make a considerable saving by taking out a consolidation loan.
- How good are you at controlling your finances? If you can handle multiple accounts and are rigorous with setting aside money for the repayments, especially if the debt is reasonably small it may not be worthwhile to consolidate.
- Are you prepared to change? Consolidating your debt without changing your spending habits is just adding fuel to the fire. Getting out of a debt spiral needs commitment on your part.
- How big are your debts? If your debt is small enough so that you can see yourself clearing it within a relatively short period – say, six to 12 months then it may not be worth the hassle of researching and applying for a different form of loan.
How do I get prequalified for a debt consolidation loan?
Many lenders offer applicants prequalification for a debt consolidation loan. This involves a soft credit check that doesn’t affect your credit score, and usually takes less than 5 minutes. While getting prequalified does not guarantee your application will be successful upon a hard credit search, you’re extremely likely to be approved. This is also a great way to check what interest rate you may get without the implications of hard searches on your score.
Compare debt consolidation loan rates online
If you decide a debt consolidation loan is the right move for you make sure you shop around and compare what’s on offer. Soft credit checks have no impact on your credit score and the process usually takes minutes. Understand what is involved, how much the loan will cost, and exactly what the terms are.
How to get a debt consolidation loan
Start by comparing the loans in our comparison tables and find those that are right for you. When you find one that’s right for you, move forward and apply. In most cases, all you’ll need are the details about your income after tax, your monthly outgoings, and how much debt you already have. The good news is most personal loans will ask you what you’re borrowing for, and letting them know you plan to consolidate your debt may make you a more attractive prospect. In most cases, you’ll have the money in your account within 48 hours so you can move forward and start your journey to becoming consumer-debt free.
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