Debt Consolidation Loans - Fair Credit
Personal loans serve different purposes and one of which is to consolidate credit card debt. However, not everyone has the luxury of securing a loan with only a fair credit score, let alone credit with favorable terms. Usually, lenders need borrowers to be super creditworthy.
But that doesn’t mean those with fair credit will not have the chance to get the funds they need at a rate favorable to them. This article will show you what your options are if you possess a decent credit score.
But before you start reading the rest of the content, here are some of the best debt consolidation loans for fair credit:
- Best Rate
- Min. Credit Score
- Max Term
- Max Amount
Payoff
- 5.99%
- 640
- 5 years
- $35,000
SoFi
- 5.99%
- 680
- 7 years
- $100,000
Best Egg
- 5.99%
- 600
- 5 years
- $50,000
- Best Rate
- Min. Credit Score
- Max Term
- Max Amount
PenFed
- 6.49%
- 700
- 5 years
- $20,000
Upgrade
- 6.94%
- Not specified
- 5 years
- $50,000
Marcus: by Goldman Sachs
- 6.99%
- Not specified
- 6 years
- $40,000
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
What Is Debt Consolidation and How It Works?
Debt consolidation is the process of combining all your debt, whether it’d be personal loans, student loans, credit card bills, etc., into a single loan with a new payment amount and terms.
Its purpose is to make your finances more manageable and reduce the amount you pay monthly for your liabilities.
The way it all works is you take up a new loan from a bank or online lender, and you use the funds to repay all your debt sources. In turn, you’ll only have one loan to think about while the rest are fully paid.
Debt consolidation loans also help you obtain better rates, which can help you save money over time.
Consolidating Debt With Fair Credit
A fair credit score is usually defined as having a FICO score of about 580 to 669, but this can vary by the lender because some consider 640 to 699 as fair. Your credit score is the main criterion that most lenders look at when deciding whether they’d lend you money or not. It’s also one of the factors they use in determining what rates you’ll ultimately get.
That’s why it’s no wonder why there’s so much emphasis on maintaining excellent scores because it’s often the deciding factor in securing credit.
A credit score that is not too bad but not too good would still have several options as borrowing becomes less stringent nowadays. However, the downside is that rates may not be as favorable as the ones extended to those with strong credit.
Things to Consider
When you consolidate your debt, it’s almost always geared towards getting a hold of your finances, but it isn’t the most appropriate solution all the time. Sometimes if you’re not up to your neck in debt, loan consolidations only prolong your debt ordeal. That’s why it would help if you consider the following scenarios first and determine whether any of them apply to you:
When you need to free up your income
Not being able to save anything each month is one of the deadly sins in personal finance because it makes you ill-equipped for financial emergencies in the future.
Scaling back to pay off your credit card debt is understandable, but when most of your income goes to bills, it may be prudent to consolidate all your liabilities with an aim to secure a lower monthly payment so you can make room for savings.
If you struggle with multiple payments
Another thing you can consider is your handle on payment management. Part of the dread involving credit card debt is missing due dates, and what more if you need to grapple with multiple ones? That can be dizzying.
In this case, it is helpful to merge everything into one payment, so you only need to keep in mind a single due date each month. This makes your finances a lot easier to manage.
If you intend to have access to credit in the future
Managing debt has many alternatives, and some are discussed more in a later section of this article. But essentially, a typical last resort when you basically tap out to your liabilities is a debt settlement. This allows you to settle your loan for a much lower amount, but the repercussion is you may find it difficult to obtain credit again.
Therefore, if you still plan to borrow money somewhere down the line, it’s better to consolidate your credit card bills. And with a fair credit score, you’re not exactly depleted of any other options to manage debt. There is a good chance that a lender would be willing to offer you a personal loan with agreeable rates.
Requirements to Qualify
Before a lender could qualify you for a debt consolidation loan for fair credit, they would require a few things from you. You would need to present documents that would verify your identity, income, and sometimes your address along with an application form.
Lenders will accept a copy of your passport, or tax ID as valid identification proof. On the other hand, pay stubs, bank statements, and past tax returns are acceptable proof of income. Lastly, utility bills, a lease agreement, voter registration card, or home insurance will pass up as proof of address.
A good rule of thumb is to inquire to the lender about what other documentary evidence they require because it usually varies.
A form of identification can be your driver’s license. Sometimes, your Social Security number is enough.
Benefits of Debt Consolidation Loan
This section discusses some of the benefits of using a debt consolidation loan to pay for credit card debt:
Lowers your APR
Credit cards may seem like they don’t do much harm since you only get charged a low interest rate each month for every balance you leave unpaid. Aside from that, lenders only require you to meet the minimum payment. However, doing this would make your outstanding balance reach an amount that would take years to pay.
The seemingly low rates turn out to be a 20% or even 30% APR (annual percentage rate). And if you intend to pay it all off, it would make sense to apply for a debt consolidation loan rather than keep the balance on the card. This is because a debt consolidation loan usually has a lower APR, and with fair credit, you might be able to get even a minimum of 6%.
Improve your credit score
Building an excellent credit score is one way to make sure that credit is still accessible to you when you need it, and debt consolidation is one way to achieve that. As opposed to filing for bankruptcy or seeking a debt settlement, ensuring that you accomplish payments to your credit will improve your credit score over time.
Avoiding Stress
And of course, with only one loan and one payment to think about, it lessens the stress you feel overall. This allows you to think about other things besides your financial burden, which benefits your physical and mental health.
Other Financial Alternatives
If you’re having a hard time finding a lender who’d let you borrow money due to a fair credit score, you can apply with a co-applicant or with collateral. Lenders would feel more confident in lending you money if they can somehow guarantee that they’d be paid back or at least get a valuable asset in return in case you default.
Another option is a balance transfer card. This lets you consolidate all your credit card debt through another card with a lower rate. Some balance transfer cards even allow you to transfer credit without interest rate for up to 21 months.
And as we mentioned, you also have the last recourse for escaping your financial obligations in seeking debt settlement or filing for bankruptcy. Both options don’t require you to go through grueling years of loan repayment but instead, allow you to renegotiate terms or forgive your debt entirely. But again, this would entail the inaccessibility of credit in the future.
Last Tips
Still, nothing beats having a high credit score for securing the loan terms most favorable to you. An excellent credit score will get you the lowest rates and the largest amounts, and this could be handy for you if the financial need arises and you need credit again.
So, if you can get a debt consolidation loan to cover your debt, the best thing you can do is to take care of payments to it religiously. Once all your debt is paid, your credit score will get a big boost.
On the other hand, when it’s better rates and terms you want, you need to find a way out of your debt problem without seeking any more credit. Borrowing from someone you know, like your friends or family members, could at least get you out of the financial hurdle without incurring any more interest charges.
Frequently Asked Questions (FAQ)
Yes, this is considered a fair credit score, and some lenders specialize in providing personal loans for such borrowers.
Normally, if you seek a personal loan that’s at least $50,000, lenders may need better than fair credit score, which is usually upwards of 650.
Yes, the process of consolidating your credit card debt involves closing some of your existing credit cards.
Some lenders can offer low rates for those with fair credit, and if you’re paying multiple debt sources with a higher cost overall, it might be a good idea to seek a debt consolidation loan.V
You first need to create a breakdown of your monthly credit payments along with their respective rates. Having an idea about the amounts you pay and the exact sum you need to settle all your debt is essential before applying because it helps you select the right lender.
