When Is Debt Consolidation A Good Idea
Student loans are the only kind of consolidation we can get behindand only in particular cases. Heres what we mean.
You should consolidate your student loans if :
- Theres no cost to consolidate.
- Youll get a fixed interest rate .
- Youll get a new interest rate thats;lower;than the one you have now.
- Your repayment period will not be longer than the one you have now.;
- Your motivation to pay off your debt doesnt drop because youve got just one student loan payment.;
Pro tip: Check out our;Student Loan Payoff Calculator;to see the difference you can make on those loans if you pay extra on them now or even after consolidation!
Know Before You Borrow
If you decide debt consolidation is right for you, keep the following in mind:
- Debt consolidation isnt debt elimination. Youre restructuring your debt, not eliminating it.
- Understand the costs.Consider the total cost of borrowing. A loan with a longer term may have a lower monthly payment, but it can also increase how much you pay over the life of the loan.
- Avoid future debt. Use good credit habits and create a budget to help control future spending.
- Review alternative methods to pay down debt. If a consolidation loan is not right for you, compare the Snowball vs Avalanche methods of paying down debt.
How To Find The Best Credit Card Consolidation Loans
Posted by The Lazy Admin | Sep 25, 2021 | | 0 |
With best credit card consolidation loans available in the market, debts are easily managed and debts can be paid in small instalments. However, it is not an easy task to get these loans and the interest rates charged on them are often high. Moreover, the repayment schedules are not fixed and vary according to the financial condition of the borrower. It is always better to opt for credit card consolidation rather than choosing debt settlement option. If the conditions are favorable, then choosing this option makes financial sense.
The advantage of these credit cards is that they are offered at low rate of interest. Moreover, these loans are offered by many lenders across the country. Hence, there is no difficulty in finding one who can offer these loans at competitive rate of interest. Further, you are guided for selecting right lender through the help of the multiple lender websites. Once, the lender sanctions the loan terms, you can start making monthly payments.
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Are You In Need Of A Personal Loan
Before you apply for a personal loan, you will want to assess your needs to see if you need one, when you need it, and for what purpose. You may need a personal loan to consolidate debt that has been accruing. A personal loan may be able to help you simplify your bills, reduce interest payments, and help you get out of debt sooner. If youre considering a personal loan for emergency funds, medical expenses, or other reasons, you might want to look at other options instead.;
What Are The Advantages & Disadvantages Of Consolidation
A consolidation loan offers several advantages:
Lower interest rates: Typically, personal loans charge far lower interest rates than credit cards do. The loan interest rate is fixed, whereas credit card rates are variable, so a consolidation loan wont surprise you with a rate hike. On the other hand, credit card interest rates sometimes go down, but this seems to be a relatively rare occurrence.
One monthly payment: If you have two or more credit cards, you juggle various payment due dates and minimum payment amounts. A consolidation loan replaces these with just one monthly payment, and the payment amount is always the same, helping you better plan your monthly cash flow.
Longer repayment term: The duration of a consolidation loan is potentially much longer than that of a credit card, meaning your monthly payments can be lower than the credit card minimum payments.
Two disadvantages to bear in mind:
Requires discipline: A consolidation loan only makes sense if you stop accumulating balances on your credit cards until you repay the loan. You should only use your credit cards to the extent that you can repay them in full on the next billing date. Letting balances accumulate will put you in an even worse situation than before, as you will also be paying off your consolidation loan. If you cant muster the discipline to control your credit card use, a consolidation loan is not your best remedy.
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What Are Some Other Options To Debt Consolidation Loans
If you cant qualify for a debt settlement loan or you dont think you can make the payment schedule, you can look into debt settlement or debt management. A debt settlement company can attempt to get your creditors to accept less than the original amount as payment. Some will be willing to accept this, because at least they get some payment. You will then pay back your debt settlement agency. It can hurt your credit score, but it will at least stop any harassing phone calls youve been receiving.
Alternatively, some companies offer debt management services. For people with the income to pay off their debts but feel overwhelmed, a debt management service can help them devise a game plan to chip away at what they owe.
What If I Have A Bad Credit Score
Having a bad credit score, usually defined as below a FICO score of 660, doesnt necessarily preclude you from getting a debt consolidation loan. Traditional credit data may not always depict a consumers complete financial profile and ability to pay debts, says Toms. Some lenders will have one-on-one conversations to better understand credit scores and profiles, savings, life insurance or other factors that indicate the consumer is financially responsible.
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Benefits Of A Debt Consolidation Loan
Consolidating your debt can save you money. If you have several credit cards with double-digit interest rates and you qualify for a debt consolidation personal loan at a lower rate, you can save a lot of money in interest and, potentially, fees.
It also simplifies your finances. A debt consolidation loan combines multiple debts into one monthly payment with a fixed rate and a set repayment term so your monthly payments stay the same and you know when the debt will be paid off. Credit card rates are variable, so your monthly payments differ depending on your balance, and it can be hard to know when your debts will be paid off.
Additionally, using a consolidation loan to pay off multiple debts, especially credit card accounts, can have a positive impact on your credit score. Credit scoring models, like FICO and VantageScore, place a lot of weight on your . When a new consolidation loan lowers your credit utilization ratio, your credit score might climb as a result.
Of course, youll need to avoid making late payments or running up balances again on your recently paid-off credit card accounts. Otherwise, you could put your credit in a worse position.
Best Credit Card Consolidation Loans: 2021 Review
Fretting at 2 a.m. seems to be a prevalent, if unwanted, affliction that robs millions of their sleep each night. Although our minds can be racing well past our bedtimes for seemingly countless reasons from work to family to school finances are a common insomnia-inducer. If you lie awake worrying about your credit card debt, a consolidation loan can address the problem directly, something beyond the scope of a sleeping pill.
A credit card consolidation loan is a specific type of personal loan that allows you to pay off your existing credit card balances and replace them with a fixed-interest, fixed-payment loan. Through consolidation, you can stop juggling multiple monthly payment dates and minimum payment amounts for your credit cards. You may even lower your total monthly cash outflow.
Our experts have reviewed options and selected the best credit card consolidation loans available today. Read on to see which one suits you best.
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Balance Transfer Credit Cards: Recommended For Balances Less Than $15000
One of the most popular means of consolidating credit card debt is by using a balance transfer. This approach requires you to open up a new credit card account to which you move your existing credit card balances. The new card should have a lower interest rate, typically offering a 0% interest promotional period. These promotional periods can last anywhere between 9 and 21 months.
The new line of credit you are issued sets the limit for how much of your balance you can transfer to it typically banks will not issue credit limits larger than $15,000. The actual number will depend on your credit score and income. Due to this limitation, balance transfer cards are ideal for smaller debts, typically below $15,000.
Before applying, you should be aware of what the new cards ongoing APR will be once the promotional zero percent period runs out. If youre still going to be left with a substantial amount of debt afterwards, you dont want to be stuck paying a higher interest rate. You should also know that certain actions, such as missing or being late on a payment, are grounds to end the zero percent period.
Most balance transfer credit cards will impose a fee when moving over a balance from another card. The fee is typically between 3% and 5%, and is applied at the moment of transfer. We find that the average consumer will still come out ahead by deferring their interest for 3+ months, despite the added fee.
How We Chose These Lenders
This list does not represent the entire market. We began by analyzing the most commonly reviewed and searched-for debt consolidation loan rates. We only included lenders that offered loans marketed specifically as debt consolidation loans. However, its worth noting that other lenders offer personal loans that can be used for debt consolidation purposes too. Then, we cut out any lenders based on the following criteria:
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Best For Bad Credit: Upgrade
Upgrade offers low minimum loan amounts to borrowers who dont have good credit.;
Prequalification wont affect credit
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Loans come with origination fees
Late fees and administrative fees
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Read the full review: Upgrade Personal Loans
Debt Consolidation With A Personal Loan
Why personal loans are great for debt consolidation.
- Fixed Interest Rates: Consistent monthly payments through fixed rates that will never increase.
- A Clear Goal: By opting for a 30- to 60-month loan term, you know exactly when youll be debt free.
- Debt Simplified: Combine all of those credit card bills into one, simple monthly payment.
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Withdrawing Funds From Your Retirement Account
Pros: Its your money which means youre not going to have to present proof of good credit.
Cons: This could lower your retirement savings and you could get hit with the aforementioned early withdrawal penalty. Furthermore, you might not be able to take out the entire fund in one lump sum which might not be too helpful for quashing a larger debt.
If you have a 401k or an IRA, you might be able to draw emergency funds if you need money in a pinch. Unfortunately, there are possible repercussions to consider.
Tapping into your retirement funds can be a little tricky. If youre under the age of 60, then you could get hit with an early withdrawal penalty. This alone could severely decimate whatever funds you had in your account and make things tougher when the time comes to finally retire.
If you can avoid using your retirement funds for debt consolidation, then you should. Especially since, in most cases, the money you keep in your 401k is protected from creditors.
How To Qualify For A Debt Consolidation Loan
Each lending institution has its own criteria for qualifying borrowers. Common requirements are that borrowers be at least 18 years old, legal residents of the U.S. and not in foreclosure or bankruptcy.
Most lenders look for a minimum credit score in the mid-600s and a debt-to-income ratio below 45 percent. DTI is the percentage of your gross monthly income that goes toward your monthly debt payments. An excellent credit score and low DTI will get you the best interest rate and may qualify you for a larger loan.
Even if you have bad credit, you may find a lender that’s willing to extend you a loan, but you’ll pay higher interest rates. If you’re in this scenario, you may want to apply with a co-signer who has good credit to improve your chances of being approved.
Having a good-credit co-signer improves your overall credit picture, but keep in mind that the co-signer shares responsibility for the loan if you fail to make payments.
Learn more:How to get a debt consolidation loan with bad credit
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What Is A Personal Loan
An unsecured personal loan is money you can borrow from a financial institution like a bank, credit union, or online lender that doesn’t require collateral . If youre approved for an unsecured loan, you’ll make monthly payments to pay it back in full, plus interest. The loan terms and interest rate can vary based on the lender and your credit.
Tips For Getting Approved For A Debt Consolidation Loan
To get approved for a debt consolidation loan, you will want to first decide on the loan type you want andwhether it is an unsecured or secured loan. A secured loan requires collateral, but an unsecured loan does not.
You will then need to figure out approximately how much money you will need to borrow to cover the total ofall of your debt payments. Once you have this information, check your credit score and credit history to seewhere you stand so you can find the right lender.
Make a checklist of what you want and need concerning interest rates, monthly payments, and other repaymentoptions and you can then discuss the loan options and financial situation with the bank, credit union, orfinancial institution you will be going with.
Finally, the debt consolidation does not stop with the loan payments and paying off the debt. You will wantto take a closer look at your spending habits and see where you can save and what you need to change to beable to avoid building the debt back up.
Coming up with a debt management plan is the best first step to take after considering debt consolidation.
Disclaimer: The person depicted is a model accompanied by a testimonial for illustrative purposes only.
REMEMBER never to share any financial information or other sensitive personal data over the phone orvia email without independently confirming the identity of the company calling first!
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How Will Credit Card Consolidation Affect My Credit Score
A consolidation loan will likely hurt your credit score in the short run and raise it later, but only if you stick to a disciplined approach of paying your bills on time.
Your credit score will take a short-term hit, although usually not a big one, due to the following causes:
New credit application: While loan facilitators usually perform only soft credit inquiries, lenders do a hard inquiry of your credit. That is, they check your credit scores and reports from one or more of the major credit bureaus. Hard credit checks lower your credit score, but only by a few points.
New credit account: Lenders perceive a new loan or credit account as an additional risk and therefore lower your credit score.
Reduced average age of credit: A new account lowers the average age of your credit accounts, which is another negative according to the credit bureaus.
On the other hand, a consolidation loan can provide some positives for your credit rating:
Reduced credit utilization ratio : The CUR measures the credit you use versus your total available credit. The consolidation loan increases both, but the credit used by your credit cards will be eliminated because you will pay your cards off. In other words, your available credit increases while your total used credit remains the same. Thus, your CUR falls, which means you have greater credit reserves to help you pay your bills. Credit bureaus reward a lower CUR with a higher credit score.
What Are The Requirements To Apply For A Personal Loan
While eligibility criteria can vary by lender, here are a few personal loan requirements youll likely come across:
Lenders want to see that you can afford to repay your loan. Some lenders have a minimum required income while others dont but in either case, youll likely have to provide proof of income.
Low debt-to-income ratio:
Your debt-to-income ratio is the amount you owe in monthly debt payments compared to your income. To qualify for a personal loan, youll typically need a DTI ratio of 40% or less though some lenders might require a lower ratio than this.
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