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Debt Consolidation Reviews

Consolidating debt with personal loans

An unsecured personal loan can be used to consolidate your debts or finance large purchases. Based on credit scores and other factors, terms and interest rates can differ. Compare personal loans offered by multiple lenders to learn more.

How to Consolidate Debt Loans

What is a debt consolidation loan? How does it work?

A debt consolidation loan allows you to consolidate multiple debts into one loan. This can be used to pay off high-interest credit card balances or medical bills, as well as other unsecured debts. This strategy will lower your total debt interest and allow you to pay it off more quickly.

Some banks, credit unions, and online lenders offer consolidation loans. If you are approved, the lender will deposit the loan into your account. You can then use the money to repay your debts. Some lenders will direct your loan proceeds to your creditors, which can save you time.

After paying off all your other debts, you will make monthly payments towards the consolidation loan. The loan’s term is typically between two and seven years.

One strategy for paying down debt is to consolidate. If you are in too much debt or have not addressed underlying spending issues, consolidation will not work.

How can I get a consolidation loan for my debt?

Nearly all lenders require that you are at least 18 years old and a legal resident of the United States with a verified bank account. You must not be in bankruptcy or foreclosure.

Lower interest rates may be available to borrowers with excellent credit (690 and higher on the FICO Scale) and low debt/income ratios. You may be eligible for higher loan amounts if you have strong credit.

A person with poor or fair credit (or lower on the FICO scale) and steady income might still be eligible, but they would likely pay a higher interest. It is worth shopping around to compare rates for debt consolidation loans to find the best one.

What is the best rate I can expect?

Consolidating debts with loans is best when the interest rate on loan is lower than your combined interest on existing debts. Consolidationnow offers a debt consolidation calculator that will show you your total debt, monthly payment, and combined interest rates for all of your debts.

Rates can vary greatly from one lender to another and are heavily dependent on your credit history as well as your ability to repay.

What will my credit score be if I consolidate debt?

When you apply for a consolidation loan, lenders will conduct a hard credit investigation. This will temporarily lower your credit score and remain on your credit report for up to two years.

As with other forms of credit, you should make your monthly payments on time and in full to build credit. Missing payments can cause credit damage.

Your credit score may be affected if you take out a loan to pay off your credit card debt but carry a balance on your cards even though the loan is active.

Consolidating your credit can positively affect your credit score, provided you can pay your loan off and keep your debts out.

Balance transfer card vs. debt consolidation

A balance transfer credit card can be an option to a consolidation loan for borrowers who have good credit. These cards offer an introductory rate of 0%, which then increases over time, but usually not more than 18 months.

The introductory period will expire, and your regular interest rate will start. You should pay off the card’s remaining balance by the due date. You’ll also want to pay off the balance before the rate rises.

Personal loans offer some advantages over balance transfer cards.

Contrary to balance transfer cards, personal loans are available for all credit levels. Rates will vary, but borrowers may still be eligible. Personal loans come with fixed payments that guarantee you will pay your debts on a specific schedule.

While a balance transfer card issuer will determine your credit limit, personal loan borrowing limits can be quite high. Some lenders offer loans up to $50,000.

An installment debt is a personal loan balance that is reported to credit scoring formulas. It is different from revolving debt like credit cards. A higher percentage of your credit score is associated with revolving debt. Therefore, paying off balance transfer cards could help you to build credit quicker.

How do I manage my consolidation loan debt?

A budget that includes loan payments is an important step towards consolidation. Consolidationnow suggests the 50/30/20 rule. This divides your income into three groups: wants, needs, savings, and debt repayment.

Keep your credit card balances low until you’re debt-free. Keep your accounts open, as this can reduce your credit score. You may be required to pay a fee by some creditors to keep your account open.

How to choose the right debt consolidation loan

The best debt consolidation loan for you will depend on your credit score and income. However, it is a good rule to search for the lowest annual percentage rates.

Pre-qualification to compare rates is possible with many online lenders. This won’t affect your credit score. This feature is not as common in banks or credit unions.

Look out for lenders who specialize in debt consolidation. They may offer perks such as sending loan funds directly to creditors, reporting to the three major credit bureaus, and free financial education.

Consolidationnow reviewed over 30 lenders to help you find the right one for you.

 

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