Want to consolidate your debts and cut your payments? Here are some of the things 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 to 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.
Prosper Personal Loans
You could borrow up to $35,000 for a variety of purposes, with rates starting from 5.99%.
- Recommended Credit Score: 640 or higher
- Minimum Loan Amount: $2,000
- Maximum Loan Amount: $35,000
- Loan Term: 3 or 5 years
- Turnaround Time: 1-3 business days
- Simple online application process
- No prepayment penalties
How do I consolidate my debt with a personal loan?
Taking out a personal loan to consolidate your debt lets you put all of your debt in one place as you work to pay off the loan, often at lower rates. 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 higher, you’re spending a lot more than you need to. You can save significantly by 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.
How can I find the right option to consolidate my debt?
Finding the right alternative to consolidate your debt requires you to examine what the loan has to offer when making your comparisons. Consider the following:
- Eligibility. Some lenders provide debt consolidation loans only to individuals with good or 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.
What kinds of debt can you consolidate?
Make sure that when you’re applying for a personal loan that they APR is not higher than what you’re already paying. The interest rate is where you will see the savings. People generally 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. Many credit cards also 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 more competitive interest rate.
- Private student loans. While consolidation of federal student loans is not possible, students can consolidate private education loans.
Personal loans you can consider 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.
- If the provider quotes a different rate to the one above please let us know
Is there anything to consider before applying?
Some people who opt for debt consolidation don’t have solid plans in place on how they will repay, 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 paying lower payments, figure 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 depends on the kind of debt you have and 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.