Personal Loans for Debt Consolidation | Here’s Everything You Should Know
If you have bills and unpaid debts up to your throat, then debt consolidation loans will bail you out. These unsecured fixed-rate personal loans will help you pay off your unsecured personal debts easily.
Personal loans for debt consolidation will save you huge interest and accumulated penalties due to late loan repayments. And, apart from putting all your debts, including credit card debts in one place, debt consolidation loans could also come with lower rates.
In this article, we take a deeper look into personal loans for debt consolidation. We have all the information to get you started. We’ve also singled out lenders with the best rates in the market today.
- Rep APR
- Term
- Max loan limit
Marcus
- 6.99%-19.99%
- three to six years
- $3,500 - $40,000
Discover
- 6.99%-24.99%
- 36-84 months
- $2,500-$35,000
Payoff
- 5.99%-24.99%
- 24-60 months
- $5,000-$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
How does Debt Consolidation work?
Debt consolidation involves using a single loan with fixed monthly repayments to offset multiple debts. With consolidation, you basically take a single large loan with lower interest to offset your existing ones to save costs (interests).
Borrowers mostly consolidate credit card debts. They are among the loans with the highest interest rates. Consolidation can also work with personal loans, medical bills, and payday loans.
Upon approval, the funds will be wired to you through your preferred means and based on the financial institution. You’ll then use them to offset your credit card debt or any other existing loans.
Other lenders may prefer to wire the funds to the creditors directly. This will then leave you with only the debt consolidation loan to service monthly. This is manageable and cheaper.
As you go for a debt consolidation loan, be sure to develop a good debt repayment plan. Repaying some debts, such as credit card debts, could open room for taking some new ones. Before you know it, you’ll have accumulated a larger loan amount. And, such will place you in an even deeper debt cycle.
Banks, online lenders, and credit unions are some of the best lenders for personal loans for debt consolidation.
Requirements to qualify
Like with other loan products, requirements to qualify for debt consolidation loans differ from one lender to another.
The basic requirement common among lenders, however, is that you must be a legal resident of the United States. You must also be aged 18 years and above. The lender will verify this using your national ID, valid driving Licence, or travel passport.
The lender may also need such personal details as your social security number and address. And the borrower should also have a verifiable bank account.
Specifically, for debt consolidation loans, lenders require credit scores in the mid-600s. Other lenders will also consider your annual income and your debt-to-income ratio to gauge your ability to repay the loan.
A low income-to-debt ratio is an indicator to lenders that you are not using too much of your income in repaying loans. Basically, your debts shouldn’t be more than your income.
Some lenders will also pay lots of attention to your credit history. It should be free of tax liens, bankruptcies, foreclosures, and repossessions.
Other lenders will still offer you a debt consolidation loan even with a bad credit score. However, you’ll most likely part with high-interest rates. A way out of this would be getting a co-signer with a good credit profile.
A co-signor improves your general credit picture. However, note that both of you are tied to the loan. And, you’re all held responsible for the repayment.
When getting a debt consolidation makes sense?
Debt consolidation will be an excellent option for you if you’re looking to offset your debts faster. Consolidation will also make sense if you’re looking to do a credit card balance transfer with a good credit score but high total debts.
Debt consolidation would also be worth considering if you’re looking to simplify your finances. You’ll combine all your debts into a single monthly repayment with your set repayment terms.
This way, it’ll be easier to track your debts. Plus, you’ll also hardly ever miss out on repayments.
This loan is also good if you’re not willing to use your home as equity for your unsecured debts.
Consolidation also makes sense if you’re looking to boost your credit score. Consolidation loans lower your credit utilization ratio. Credit agencies are often keen to note a decrease in your credit utilization. Such boosts your score.
Debt consolidation woul be a good idea if you can’t fully repay your high-interest debts.
Pros and cons
| Pros | Cons |
|---|---|
|
Simplifies finances – you’ll have set payment terms for your loans. This way, you’ll hardly feel any financial strain. And, you’ll only service your debts and other bills more comfortably. Simplifies finances – you’ll have set payment terms for your loans. This way, you’ll hardly feel any financial strain. And, you’ll only service your debts and other bills more comfortably. |
Credit card rates are not fixed – your monthly repayments for credit card debt don’t stay the same. They differ based on the balance. This way, it gets harder to know you’ll pay off your debts. Extending your repayment period may also have you paying higher rates |
|
Combines all your debts – consolidation loans will help you clear all debts and only remain with a single loan to service. This helps keep your finances organized. This way, you’ll hardly miss out on your repayments, especially for credit cards. |
Late repayments and chargebacks on your recently paid credit card accounts hurt your credit score and leave you in an even severe state |
|
Fixed rates and repayment terms – your monthly repayment amount will remain the same throughout the life of the loan. Hence, it will be easy to budget and plan for your finances. |
Opens you up to more debt – clearing your credit card debt with consolidation loans leaves it free. Giving in to the temptation of taking more debts could put you in an endless debt cycle |
|
Consolidation loans positively impact your credit score – consolidation loans will help you pay off multiple debts all at once. This way, lenders will put up a positive report of you. Plus, the new consolidation loan will lower your credit utilization ratio which ultimately boosts your credit score. |
|
Average debt consolidation loan rates?
Personal loans for debt consolidation are perfect for loans with lower interests than that of the combined existing debts. Most of the lenders above have online tools to help you calculate combined interests, monthly repayments, and total balance.
Consolidation loan rates vary from one lender to another. But that also depends on your ability to repay the loan and your credit history.
Please note that your primary concern is getting the lowest rates. Such make your loan cheaper. Use this factor to compare different companies and settle for the best.
You’ll also have to choose between loans with fixed-rate interests and varied interests. Debt consolidation loans with variable rates change according to changes in the market rates. They may start with lower rates but increase when market rates increase.
Prequalification can help you compare rates from different lenders without harming your credit score.
Debt consolidation vs Balance transfer card
0% balance transfer credit cards may at times prove to be a cheaper and more efficient way of debt consolidation. This is an option for borrowers with good credit scores.
A balance transfer credit card helps you move your credit card debt to another credit card incurring a 0% introductory rate, subject to an increase after the promotional period is exhausted, usually 18 months, or less.
You should repay the card before the period elapses and the regular interests begin to take effect.
For a balance transfer credit card, the goal is to offset the balance before the expiry of the introductory rate. This way, you’ll save more money on interest.
As you use balance transfer cards to offset your credit card debts, remember, they may not effectively lower your credit utilization. At least not as effectively as debt consolidation loans would.
Consequently, balance transfer credit cards may not positively impact your credit score.
A debt consolidation loan will help you stay disciplined as you service your loan. This is because they have fixed monthly repayments.
Personal debt consolidation loans tend to have higher loan limits. Some lenders offer as high as $100,000 or more depending on your credit history and ability to repay. Personal debt consolidation loans are also available to even borrowers with low credit scores.
These loans also come with fixed monthly repayments. Such enable you to have organized scheduled payments.
Alternatives to personal loans for debt consolidation
If personal loans for debt consolidation are not a good fit for you, the following options will suffice;
- Home equity – tapping on the equity of your home can help you offset existing debts. Lines of credit and home equity loans help borrowers to get lower interest rates by using their homes as collateral to secure their loans. However, you risk losing your property to the lender should you be unable to fulfill your part of the lender agreement.
- Debt relief services – otherwise called debt settlement companies, debt relief services serve as an excellent option for those who are not qualified for debt consolidation loans. Debt relief companies will basically reach to your debt collectors and creditors in a bid to settle your debt with a lesser amount. However, please note that these companies could charge higher fees. Before application, be sure to go over their fees, customer reviews, and every single detail that you’ll consider important. Do the same for multiple companies and choose the one that best fits your needs.
- Credit counseling – if debt relief services aren’t what you’re looking for, then credit counseling will suffice. This will help you out of an uncontrolled debt situation. The companies are mostly non-profit making organizations. Apart from debt counseling, they’ll also help with DMP – Debt Management Plan. DMP is where you make a single payment to the company which then divides the payment to different creditors. They’ll negotiate lower fees and rates for you, hopefully lowering your debt obligations hence faster debt payments. You’ll probably part with a $30 to $50 set-up. You’ll also a $20 to $75 monthly DMP management fee. This usually lasts between three to five years.
Frequently Asked Questions (FAQ)
Debt consolidation involves borrowing a larger loan (personal debt consolidation loan) and using it to repay multiple small loans and credit card debts. A debt consolidation loan puts all your credit in your place so you easily pay them off. Personal loans for debt consolidation generally attract lower interest rates.
Debt consolidation loans can have you sinking deeper into endless debt cycles if you’re not careful. Repaying multiple dens opens doors for some more. taking such will make you vulnerable to lenders. And, worse, you may be unable to repay your loans on time hence damaging your credit history further.
Yes. consolidating your loans will get them organized so you have a single loan to repay monthly. This way, you hardly miss out on repayments. You’ll also likely access lower interest rates. sole purpose of earning a decent return.
Lenders may not always approve debt consolidation loan applications for borrowers with poor credit scores. However, when you do, it might come with higher interests and consequently higher monthly repayment amounts.
The lenders above are some of the best in the market today. They have the lowest interest rates. They offer up to $100,000 and they have flexible monthly repayments.
