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 find that you have varying account balances over the years. These are often unsecured debts with high interest rates and different repayment terms.

Debt Consolidation Loans is one of the options to consider if you need help making it easier to pay off your debt. While not suitable for everyone, these loans can allow you to lower interest rates, make it easier to pay off balances and, in some cases, lower your monthly payment.

Keep reading to find out how to find the best debt consolidation loan for your financial situation.

What is a debt consolidation loan?

A debt consolidation loan is unsecured personal loan which allows you to combine various debts, including credit card balances and loans or lines of credit, into one simple balance sheet. If you have four credit cards what you pay off, for example, you can use a debt consolidation loan to pay off your credit card balance and then start making payments on the loan.

Alternatively, some lenders may pay your lenders directly, so you will be asked to provide them with loan balances and account numbers.

As with almost all loan products, the lowest interest rates for debt consolidation loans are usually available to those with the best credit rating. In general, you can expect the annual interest rate to be between 5.99% and 35.99%.

With Credible, you can easily compare rates immediately from different creditors.

How Do Debt Consolidation Loans Work?

To take out a debt consolidation loan, you need to apply and fulfill the requirements of the lender. loan requirements… Once you submit your application and qualify, you will be offered your terms and conditions, including the loan amount and a fixed interest rate. Your lender will provide a schedule for your loan, including the monthly payment amount, depending on the loan term you choose.

In some cases, this new payment may be less than the total amount you paid on existing debts. While a lower payment can help with cash flow, note that it may cost you more interest over the life of the loan, and it may take you longer to get out of debt. If you agree to the terms of the loan, you will sign the closing documents for the funds and they will be paid.

Depending on the lender, there may also be loan closing costs and other fees that should be considered, such as a loan disbursement fee or a prepayment penalty. This can affect the total cost of your loan, so do your calculations to make sure that even with these fees (if applicable) you will still save money in the long run.

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 history.

You may want to consider obtaining 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 approval and funding, and also make it easier to manage your loan. Just make sure the interest rates, fees, and terms are consistent with what you see elsewhere so you don’t pay more for the sake of convenience.

You can also opt for a debt consolidation loan through your credit card issuer. Trusted lender partners such as Avant, Best Egg and Discover provide debt consolidation loans of up to USD 35,000 through a simple online application. The rates are only 5.99%, depending on the lender you choose and your FICO rating. People with excellent credit will generally be offered much lower rates than people with bad credit.

Interested in debt consolidation? Credible makes searching easier and faster best loans for debt consolidation

How can I get a debt consolidation loan?

Obtaining a debt consolidation loan is a fairly straightforward process as long as you qualify for the lender.

  1. Comparison store. First, you will want to do some benchmarking to find the best loan rates and conditions. Credible is a great place to start as it allows you to see multiple lenders and get detailed information about their loan products in one place.
  2. Pre-qualification. You can often pre-qualify with many lenders, especially if you are using a platform like Credible. Prequalification allows you to compare rates and get an idea of ​​your likelihood of approval with a simple credit check and no obligation.
  3. Apply. Once you have selected a lender and have been prequalified, it’s time to apply. You will be required to provide personal information such as social security number, address, date of birth, email address, and income. During this time, the lender will usually do a tough credit check and you will be given the final decision.
  4. Close. It’s time to close your new loan. Your lender will send final documents that will include your loan amount, interest rate, repayment terms and any applicable fees. Once your loan documents are signed, your funds will be paid (to you or directly to your creditors). Financing terms may vary, but you can get your loans in just one 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 debt repayments, usually by lowering overall interest rates. How much you save depends on your unique situation.

For example, suppose you have $ 10,000 in credit card debt at a current annual interest rate of 25%. If you only make the minimum payment of $ 309 per month, it will take you about four and a half years to pay off the balance, and it will cost you a total of $ 16,808 ($ 6,808 of which is just interest).

With a debt consolidation loan, you can bring that annual interest rate down to 5.9% and bring your monthly payments down to $ 193. Although it may take a few extra months to pay off the debt, you will only pay $ 1,572 in interest: $ 5,236 in savings!

Credit cards) Debt Consolidation Loans
Amount of credit USD 10,000 USD 10,000
Interest level 25% per annum 5.9% per annum
Minimum monthly payment USD 309 USD 193
Maturity 55 months 60 months
Total interest paid USD 6,808 USD 1,572

What factors should be considered when obtaining a debt consolidation loan?

All debt consolidation loans are different from each other, so you need to consider and compare each of the factors involved to ensure that you are choosing the right loan for yourself.

  • Interest rate and annual interest rate: The interest rate and annual interest rate on your loan will determine how much that loan will ultimately cost you. The lower the rate, the less you pay. When consolidating debt, choose a loan that lowers your effective interest rate.
  • Closing costs and fees: Some lenders may charge clearance fees, administration fees, and other closing costs that add to your overall loan costs. You may need to factor these costs into the total loan amount to make sure that your final disbursements are sufficient to cover your debts.
  • Credit term: The loan term will determine how long you have to pay off the debt and how much your monthly payment will be. Strike a balance between your debt repayment goals and your monthly budget to find a deadline that’s right for you.

Debt Consolidation Loan Alternatives

Here are a couple of alternatives to debt consolidation loans to consider if you want to pay off your existing debt faster or at lower interest rates.

Credit card for balance transfer from 0% per annum

The first option is to use a 0% balance transfer card. With a Balance Transfer Credit Card, you can transfer your debt from one account to another with a zero interest introductory opportunity. Just do not forget to pay the balance before the end of the introductory period, otherwise interest will begin to accrue on the remaining debt at the usual rate of the card.

Home capital

Another option is to use your existing equity capital with a loan. This can be a good option if you have good credit, and even if you have honest credit… A secured home equity loan allows you to use equity that is already in your possession. Just be aware of the potential pitfalls of using a home equity loan to pay off debt. This method converts your unsecured debt – such as credit card balances and medical bills – into debt secured by your home. If you did not take advantage of the loan, you could lose your property.

Debt consolidation loans can be a key part of any debt management plan. If you are manipulating the balances of several debts, especially those with higher interest rates, it might be worth considering these unsecured personal loans.

Check Trust in compare rates on loans for debt consolidation and find the one that works best for you.

about the author

Stephanie Kolestok

Stephanie Colstock is a Washington, DC-based writer with over 10 years of experience writing articles on investment, business, and personal finance. She has worked for publications such as Yahoo! Finance, MSN, Investopedia, Credit Karma, Credible and others. She holds a BA from Baylor University and is currently receiving CFP® certification.

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