How To Find The Best Debt Consolidation Loans
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A new credit card here, a personal loan there, maybe a line of credit – it’s easy to carry a multitude of balances with you over the years. These are often unsecured debts with high interest rates and varying repayment periods.
Debt consolidation loans are an option to consider when you need help in simplifying your debts. While not for everyone, these loans can allow you to lower interest rates, make it easier to withdraw funds, and in some cases reduce your monthly payment.
Read on for how to find the best debt consolidation loan for your financial situation.
What is a Debt Consolidation Loan?
A debt consolidation loan is an unsecured personal loan that allows you to combine various debts, including credit card balances and loans or lines of credit, into one simple balance. For example, if you have four credit cards to pay off, you can use a debt consolidation loan to settle your credit card balances and then start paying the loan.
Alternatively, some lenders may pay off your creditors directly so that you will be asked to provide them with loan balances and bank account numbers.
As with almost all credit-based products, the lowest debt consolidation loan interest rates are usually available to those with the best credit ratings. In general, you can expect the APR to start at 5.99% and go up to 35.99%.
Credible makes it easy to compare the rates of different lenders at the same time.
How Do Debt Consolidation Loans Work?
To get a debt consolidation loan, you need to apply and meet the lender’s loan terms. Once you have applied and qualified, you will be offered your terms, including a loan amount and a fixed rate of interest. Your lender will provide you with a schedule for your loan, including a monthly payment amount based on the repayment term you have chosen.
In some cases, this new payment can be less than the total amount you paid for your existing debt. While a lower payment can help with cash flow, be aware that it can cost more interest over the life of the loan and it can take longer to clear you out of debt. If you agree to the loan terms, sign the closing documents for the funds and they will be paid out.
Depending on the lender, loan completion costs and other fees may also apply, such as: B. a commitment fee or a prepayment penalty. These can affect the total cost of your loan. So do the math to make sure that despite these fees (if applicable), you still end up saving money.
Where Can I Find a Debt Consolidation Loan?
Debt consolidation loans are offered by a variety of different lenders, from banks and credit unions to credit card issuers. Choosing the right one for you depends on your needs and your credit rating.
You may want to consider a debt consolidation loan through your existing bank or credit union. Since you have a relationship there, it may be easier for you to get approved and funded, and your loan may also be easier to manage. Just make sure the interest rates, fees, and terms match what you see elsewhere so that for the sake of convenience, you stop paying.
You can also opt for a debt consolidation loan through a credit card issuer. Credible affiliate lenders like Avant, Best Egg, and Discover offer debt consolidation loans of up to $ 35,000 with a simple online application. Interest is only 5.99% depending on the lender you choose and your FICO score. People with excellent credit are generally offered much lower prices than those with poor credit.
Do you want to consolidate your debt? Credible makes it easier and faster to find the best debt consolidation loan.
How Do I Get a Debt Consolidation Loan?
Getting a debt consolidation loan is a pretty straightforward process when you meet the lender’s requirements.
- Comparison shop. First, you want to compare shop to find the best rates and loan terms. Credible is a great place to start because you can see multiple lenders and get details about their loan products in one place.
- Classify beforehand. You can often pre-qualify with many lenders, especially if you go through a platform like Credible. With the pre-qualification, you can compare prices and get an idea of your likelihood of approval, with just a gentle credit check and without obligation.
- Use. Once you’ve selected and pre-qualified a lender, it’s time to apply. You will need to provide personal information such as your social security number, address, date of birth, email address and income. The lender usually does a tough credit check at this point and you get a final decision.
- Shut down. Now is the time to complete your new loan. Your lender will send you closing documents detailing your loan amount, interest rate, repayment terms and any applicable fees. Once your loan documents are signed, your funds will be paid out (either to you or to your creditors directly). Funding times may vary, but you may be able to get your loan funds in a business day, or in some cases the same day.
How Much Can I Save With a Debt Consolidation Loan?
Debt consolidation loans can be a great way to save money on paying off your debts by typically lowering your overall interest rates. How much you save depends on your individual situation.
For example, suppose you have $ 10,000 credit card debt at a current APR of 25%. If you only make the minimum payment of $ 309 per month, it will take about four and a half years to pay the balance and will cost you a total of $ 16,808 (of which $ 6,808 is interest only).
With a debt consolidation loan, you could cut that APR to 5.9% and cut your monthly payments to just $ 193. While it may take a few additional months to pay off the debt, you’ll only pay $ 1,572 in interest: a saving of $ 5,236!
|Credit cards||Debt Consolidation Loans|
|Loan amount||$ 10,000||$ 10,000|
|Interest rate||25% APR||5.9% APR|
|Monthly minimum payment||$ 309||$ 193|
|Repayment period||55 months||60 months|
|Total interest paid||$ 6,808||$ 1,572|
What factors should I consider in a debt consolidation loan?
Every debt consolidation loan is different, so you should consider and compare each of the factors involved to ensure that you are choosing the right loan for you.
- Interest rate and APR: The interest rate and the annual percentage rate (APR) of your loan will determine how much that loan will cost you in the end. The lower the rate, the less you pay. When it comes to debt consolidation, choose a loan that will lower your effective interest rate.
- Closing costs and fees: Some lenders may charge processing fees, administration fees, and other closing costs that add to your overall borrowing costs. You may need to factor these costs into your total borrowed amount to ensure that your final funds paid off are sufficient to cover your debt.
- Loan term: Your repayment term determines how long you will have to pay off the debt and what your monthly payment amount will be. Align your debt settlement goals with your monthly budget to find the right term for you.
Credit alternatives to debt consolidation
Here are a few alternatives to debt consolidation loans that you should consider if you want to pay off your existing debts faster or at lower interest rates.
0% introductory APR credit transfer credit card
The first option is to use a 0% credit transfer card. With a credit transfer credit card, you can transfer your debts from one account to another using an introductory option without interest. Just make sure that you pay the remaining amount before the end of the introductory phase, otherwise your remaining debts will accrue interest at the regular interest rate on the card.
Another option is to tap into your existing home equity through a home loan. This can be a good option if you have good credit, and even if you have decent credit. With a home loan, you can use the equity that you already have in your property. Just be aware of the potential pitfalls when using a home loan for debt settlement. This method turns your unsecured debts – such as credit card balances and medical bills – into one that is secured by your home. If you default on the loan, you could lose your property.
Debt consolidation loans can be an important part of any debt management plan. If you’re juggling multiple debt balances, especially with higher interest rates, these unsecured personal loans can be worth considering.
Check out Credible to compare debt consolidation loan rates and find the one that works best for you.