Are you feeling overwhelmed by debt? Whether you owe $10,000, $25,000, or more, there’s no question that too many debt payments can stress us out and leave nothing left to live. Many Americans with too much debt take advantage of debt consolidation to get their debts under control so they can start living again. It’s important to learn about the details of your debt consolidation loan options so you know how to take action.
What Is Debt Consolidation?
Debt consolidation can have several meanings. Most people, however, mean taking out a persona loan with a lower interest rate to pay off high-interest debt, including credit cards, medical debt, and other types of expensive debt. An unsecured personal loan can have a low interest rate, especially if your credit score is 700 or higher. Many debt consolidation lenders allow you to make direct payments to third-party creditors, so it is often easy to make payments to reduce your debt load.
The best personal loans to consolidate your debts usually have a low rate and flexible amounts of time to pay the new loan. You also may avoid costly fees, such as prepayment costs, so you can pay off debt sooner and not pay fees.
Can Debt Consolidation Loans Save You Money?
Debt consolidation loans are used to take out a new loan with lower terms or a lower monthly payment. Then, the personal loan is used to pay off the other debts. Most people take out debt consolidation loans to pay off their credit cards, medical debt, and auto loans.
To begin consolidating your debt, you should speak to your lender about applying for a personal loan. After the lender approves your loan application, it could offer to pay off your other debts automatically. Or you can take the cash and pay them off on your own.
When your current debts are paid off with the new debt consolidation loan, you will need to make one payment on the new loan each month. Debt consolidation may reduce your monthly payment, but this could be done by extending the payment terms. A debt consolidation loan also can streamline your payments and make managing finances easier. Many people find it simpler to make one debt payment per month, rather than juggle four or five with various due dates.
How Do You Get a Debt Consolidation Loan?
You should check with one of our lending professionals to get started with debt consolidation. The fact is that getting rid of debt increases your changes of getting approved for a mortgage. Every lender has a different process, but these are usually the steps involved for a loan application:
• See what your credit score is. You can usually check your credit score at no charge through your credit card company. You also are entitled to one free credit report per year through Annualcreditreport.com.
• Check various lending companies for their best interest rates and terms. Many personal loan companies will allow you to prequalify before you file an official application. This will allow you to view the loan terms without a hard inquiry on your credit report.
• Fill out a full debt consolidation application. After you locate a lender that gives the ideal terms for your needs, turn in the application in person or online. Approval could take between hours and days.
Whether you qualify for a debt consolidation loan depends on your income credit score, and debt-to-income ratio (DTI). If you don’t have the best credit, you may need to take specific actions to boost your score.
What If You Have Bad Credit?
People with too much debt may have missed payments, which can affect their credit score. Getting a loan approval with bad credit is more difficult but not impossible. One way to improve your credit score before applying is to reduce your debt-to-income or DTI ratio. You can do this several ways: Boost your income with more hours or another job, or paying down some of the debt. If you decide to pay off some debts, this will raise your score quickly.
How Do You Consolidate Debt?
There are several ways to potentially consolidate debt. Which is best for you depends on you and your finances. Some options to review are:
• Debt consolidation loan: Personal loans are typically the way most people consolidate their debts. Taking out a personal loan is an effective way for you to streamline all of your debts into a single loan.
• Transferring debt to a new credit card: People with good credit may be able to get a zero interest credit card where they can transfer their credit card balance for a year or 18 months. This is a smart option to streamline your debt payments and avoid interest payments as long as the zero interest period is in effect. But if you don’t pay off the balance by the end of the period, all the interest will hit at once.
• Home equity: If you have at least 20% equity in your home, you can get a home equity line of credit or home equity loan. These are types of second mortgage loans that can give you a low-interest way to reduce your debts. Getting a mortgage refinance for cash out is another option as well. But be careful: If you don’t keep up with your payments, your lender can take your home.
How Long Does It Take to Get Approved for a Debt Consolidation Loan?
Completing an online, phone, or in-person application for a personal loan or line of credit is a brief process that results in quick issuance.
To apply for a home equity loan or line of credit, you can submit your application online, over the phone, or in person. The processing duration varies depending on your credit and what size of secured debt consolidation loan you are applying for.
After signing the closing documents, funds become available following a waiting period of three business days for accounts secured by a primary residence.
If you only need $2,000 to $15,000 then you could accomplish debt consolidation with an unsecured personal loan. These unsecured debt consolidation loan can fund within 24 to 48 hours in many cases.
Summary on Debt Consolidation Qualification
Consolidating debt with a fixed loan enables the borrower’s funds to consolidate credit card debt and settle individual loans. Although certain debt consolidation lenders provide dedicated debt consolidation loans, most standard personal loans can be used for this purpose. Additionally, some debt refinance lenders handle the payoff of existing loans directly, while others disburse the proceeds to allow borrowers to manage their own payments.
If you have high interest debt overwhelming you, consider getting a debt consolidation loan. While a personal loan is with a lower interest rate is the option most consider, you have additional options. Be sure to talk to our loan professionals today to learn which option is ideal for your needs. We can help you reduce your debts and interest!
