Discover Your Options: Debt Consolidation Loans
In a world of credit cards, student loans, and other high interest debts, it can be challenging to keep up with payments. Combining surging APRs with unforgiving loan terms could make anyone feel as though there’s no way out.
Many experts suggest consolidating your debt (ie, combining multiple debts into one debt) by getting approval for a lower interest loan. Often, if you find a lender with your best interests at heart, you’ll end up with a more favorable payment term.
This way, it’ll be easier to track your payments and potentially save a significant amount of money over the long haul. Also, by properly handling your debt consolidation loan, those other debts won’t negatively affect your credit score.
Get the Best Rates for a Debt Consolidation Loan
The interest rate or annual percentage rate (APR) of your debt consolidation loan can make or break your financial future.
Primarily, people use this valuable financial tool to leverage more affordable rates. Still, others do need to rely on debt consolidation to provide some financial breathing room. However, if the APR isn’t more favorable, it’ll alleviate the pain now but cause more issues later. Keep in mind, depending on your credit reports and FICO score, you could receive rates between 5.95% and 36%.
Benefits of a Debt Consolidation Loan
While possessing a higher APR than other lending options, debt consolidation loans are far more affordable than credit card debt.
Instead of using a balance transfer credit card, which will only contribute to the debt cycle, you’ll likely find a more forgiving APR with an unsecured personal loan.
The trickle-down effect is that you’ll also pay off your loan sooner. And you won’t have to make a litany of monthly payments—lessening the chance that you’ll be late with paying.
Debt Consolidation Loans FAQ
Here are the answers to some questions we regularly hear at MoneyWizard.ca:
What is a Debt Consolidation Loan?
Debt consolidation loans take many debts and combine them into one easy-to-manage debt. They have a fixed monthly rate, meaning you can budget around them.
These are unsecured personal loans (ie. no collateral is required) are offered by banks, credit unions, and online lenders. Note that some debt consolidation lenders charge origination fees (upfront cost), while others don’t.
How do I get a Debt Consolidation Loan?
Whether it’s with a bank, credit union, or online, you’ll need to fill in an application.
Ensure you have all the necessary information, which can vary depending on the company you’re dealing with. You’ll generally require valid government ID, proof of income, employer contact information, personal contact information, and potentially your most recent tax return.
Keep in mind, nowadays, finding a debt consolidation loan is as simple as typing in “best debt consolidation loans” into Google. From there, research who has the best rate that fits your credit score.
What is an unsecured Debt Consolidation Loan?
“Unsecured” merely means there’s no collateral (eg, home or car) required for the loan. As a result, you’re borrowing at a higher APR.
Where can I get a Debt Consolidation Loan?
Banks, credit unions, and online lenders all offer these loans.
If your credit is less than stellar, you’ll have the best luck procuring your loan funds through online lenders. They tend to be more forgiving, with many being viewed as high-risk lenders charging steeper APRs.
You don’t need spotless credit to procure these loans, though. Marcus: by Goldman Sachs, for instance, is a highly reputable lender who will lend to someone with scores as low as 660.
Will I get approved for a Debt Consolidation Loan?
Start by performing your own soft credit check to review your own credit. If your score is above 600, you’re in the ballpark of being a viable candidate.
However, a credit score of over 760 will land a more affordable APR and flexible repayment terms. If you combine that with a sizable income, you’re in the ballpark of receiving an interest rate nearing 6%.
Conversely, scores hovering in the 600s will be subject to rates nearer to 36%. The lower your credit, the less likely you’ll be approved for a loan with banks and credit unions.
Online lenders tend to be far more forgiving with who they’ll accept, but such borrowers are high-risk and must end up paying a steeper borrowing price.
Are Debt Consolidation Loans a good solution?
Yes—provided you find a reasonable APR with fair repayment terms—and you keep up with your schedule.
Also, ensure you find a debt consolidation loan without prepayment penalties, so that you have the option to pay it off earlier. This will do wonders for your overall credit history and finances.
