Want to consolidate your debts and cut your payments? Here are some of the intricacies you need to consider.
Streamlining your bills, managing your finances, reigning in spending and simplifying your finances – it can feel overwhelming but the process could be simpler than you might think. Imagine rolling all your debts into one so you have just one balance you can make progress on. If you’re having trouble managing your existing debt, consolidating it could be a good idea, provided you know what the process entails. You have multiple options to choose from and it’s in your best interest to weigh the pros and cons of each.
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How do I consolidate my debt with a personal loan?
With a personal loan for debt consolidation, you can borrow as much money as you need to pay off your existing debts, and then work on paying back the loan. One company, one monthly repayment: no more wondering who to pay first.
The biggest advantage to a personal loan for consolidating your debts is saving on interest. If you have several credit cards for example, each with an APR of 12% or even more, you could save significantly if you were paying down that debt on personal loan with a 7% interest rate. With a lower interest rate and only one balance to keep track of, it may be easier to wipe out your debt for good.
But of course, a consolidation loan is like any other loan: if you fail to make repayments, you will begin to accrue interest on your loan.
How can I find the right option to consolidate my debt?
Finding the right alternative to consolidate your debt requires you to examine features when making your comparisons.
- Eligibility. Some lenders provide debt consolidation loans only to individuals with good and excellent credit scores. Some require that you earn a minimum amount every year to qualify.
- Interest. All types of debt balances attract interest, which lenders commonly advertise as annual percentage rate (APR). Bear in mind that even a seemingly small difference in percentage can have a significant effect of the total interest payable, especially if you’re borrowing a large sum.
- Fees. Prepare to pay fees in different forms. Examples include loan establishment fees, late fees and prepayment penalties.
- Loan term. How long you take to repay your loan dictates how much you pay as interest. While a longer loan term would have lower payments, it would also have you paying more interest.
- Secured or unsecured. While a secured loan can bring with it a lower interest rate when compared to its unsecured counterpart, it also comes with an element of risk. Getting a secured loan to pay off an unsecured loan, as a result, may not be a good idea.
What kinds of debt can you consolidate?
Make sure that the debt you want to consolidate has a higher interest rate than the loan you qualify for; so that you actually can see savings in interest payments. People normally consolidate these kinds of debts:
- Credit card debt. Having multiple credit cards requires that you keep track of making timely payments towards each, which can be cumbersome. As well, some credit cards charge noticeably high APRs.
- Personal loans. If you have multiple personal loans you can think about bringing them under a single umbrella. Depending on your existing financial situation and creditworthiness you may qualify for a competitive interest rate.
- Private student loans. While consolidation of federal student loans is not possible, students can consolidate private education loans.
Personal loans for debt consolidation
Personal loan lender matching services
These matching services connect consumers with personal loan lenders. It is important to note that these services do not make credit decisions and they are not lenders, loan brokers or agents for any lender or loan broker. They can help link you up with a lender that might be able to help you access a loan.
Is there anything to consider before applying?
Choosing to go the debt consolidation way does not mean you no longer have to make efforts to keep your finances in check. Some people who opt for debt consolidation don’t have solid plans in place, and many still don’t pay enough attention to saving. If you’re consolidating your debt it’s important that you pay close attention to the new credit you’re accumulating. You should try to formulate and stick to a budget. If you’re getting to pay lower payments than you do as of now find out if it’s because of a lower interest rate or an extended loan term. If you’re making smaller payments on account of a longer loan term, remember that you’ll end up paying more in interest.
What other options do I have for debt consolidation?
The best type of debt consolidation option for you depends on the kind of debt you have along with how much you owe. Your primary alternatives include:
- Credit card balance transfer. If you have existing credit card debt that attracts high interest you can look at getting a credit card that comes with a promotional balance transfer offer. These cards charge little to no interest on balance transfers for introductory periods, letting you consolidate credit card debt easily.
- Secured loans and lines. There are lenders that let you borrow against the equity you’ve built in your home, the value of your car or certificate of deposit. By getting a secured loan you can get a lower interest rate. The downside is you risk losing your asset if you cannot repay the loan in the timely manner.
- Student loans. Students cannot consolidate their federal loans with other debts, which include private school loans. However, you can work on consolidating private education loans with other types of debt. You can do this during the six months grace period after you graduate or after your loan gets to the payment stage.