Most American borrowers are caught up in a recurrent debt cycle. That’s especially because of multiple debts, most of which are often overdue and accompanied by high penalties.
Credit card debts are the most common. Being caught up in this cycle is not only expensive but also severely hurts your credit score. However, this is not a hopeless situation, and you can still bounce back.
Debt consolidation will help integrate different debts into a single loan you can pay off with more friendly terms. In this article, we’ll point you to the best lenders for personal loans for debt consolidation for a good credit score. Take a look;
Consolidation means applying for loans against the amounts you owe on debts. A larger percentage of this always consists of credit card debts. Once approved, you’ll then proceed to use the funds to offset your existing debts.
Apart from credit card debts, you can also consolidate payday loans, personal loans, and even medical bills.
Lenders can either send the money to your account or directly to your existing creditors. You’ll then remain with one loan that’ll you’ll be repaying monthly. This not only gets you organized but also acts as a way of bringing together all your debts so you hardly miss out on a repayment.
So, with consolidation, you basically combine these high-interest debts into a single debt with lower interest.
If approached and managed responsibly, consolidation is an excellent way to cut costs on interests and repay your loans faster.
These loans often come with fixed terms to keep you determined to repay your loan faster. They are also mostly unsecured. So you don’t need to risk your house, car, or any other valuable asset by offering it as collateral.
A practical debt repayment plan is also crucial when going for debt consolidation. That will help you stick to the repayment plan and avoid sinking deeper into debts.
Like a typical loan product, each lender lays down the requirement each borrower must meet to qualify for consolidation.
Good credit is a common requirement. A borrower with a credit score of at least 600 can qualify for personal loans for debt consolidation. However, even lenders with poor and bad credit scores can also qualify.
However, borrowers with bad credit scores may part with higher interest rates and unfriendly loan terms. Such borrowers may consider throwing in a co-signer with good credit to act in good faith.
Having a co-signer with good credit earns your credit a good image. However, they also share the responsibility should you fail to repay your loan. This may lead to a damaged relationship with your co-signor.
Other basic requirements each lender asks for include legally residing in the US at the time of application.
A borrower must also have attained the legal age, usually 18 years. Upon providing this information, a lender will ask for an ID, travel passport, or valid driving license for verification.
Take your time to shop around for lenders whose policies and rates conform with your savings goals. Once you find one, go over their policies and requirements then proceed to submit a formal application.
Such things as bankruptcies, tax liens, repossessions, and foreclosures in your credit history might also deny you debt consolidation loans with most lenders.
You also need to show a functional bank account to your lender. Much focus will be drawn to your annual income and income-to-debt ratio.
A high debt-to-income ratio is an indicator that much of your income goes to repaying loans. this might make lenders lose faith in your ability to repay your loan, thereby denying you consolidation.
Debt consolidation is a shot worth considering by borrowers looking to simplify their bills and offset their existing debts faster.
Debt consolidation loans will bring all your existing debts under one roof. And, at the same time reward you with flexible monthly repayment terms so you keep up with the payments.
Debt consolidation is also a worthy course when you have a good credit score. Such will win you approval with most lenders easily. More, you’ll also likely have more flexible terms. And even more, you’ll get lower rates – lower than that of your existing debts.
Debt consolidation will also make sense to borrowers who are not looking to go the home equity way. Using your home as equity for your unsecured loans, though could grant you better loan terms, puts in the risk of losing your property.
If you are also looking to boost your credit score, debt consolidation loans can come in handy. Such loans will lower your credit utilization ratio. Low credit utilization boosts your credit score.
Simplified finances – debt consolidation loans come with predetermined loan terms, which are mostly flexible. Such makes budgeting easier and repaying your existing bills even easier
Variable credit card debt rates – credit card debt monthly repayments are not fixed. They vary based on the debt balance. Such makes them expensive. Plus, you’ll have a hard time getting out of debts. And should you extend your repayment period, you’ll end up paying even higher rates.
Integrates your debts – bringing your loans together and repaying them as a single debt is the whole idea behind consolidation loans. doing so helps in budgeting and organizing your funds. You’ll, therefore, keep track of your repayments, and avoid the consequences of late or missed repayments.
A single late repayment or chargeback on your credit card debt repayment history can pull down your credit score and mess up your credit history.
Fixed interests and repayments – since your monthly repayment amount is constant, you’ll easily budget your funds. You’ll also easily plan your finances.
Ability to borrow more loans – Repaying your existing loans will likely make you eligible for new loan products. Falling for this trap without a practical repayment plan will likely leave you with an even worse credit history
Boosts your credit score – paying off all your existing loans with consolidation loans will have your lenders positively updating your credit profile. The new debt will also lower your credit utilization ratio hence boosting your credit score.
Debt consolidation will only make sense if the loan borrowed has a lower interest than your existing debts.
Each lender has different considerations when setting their respective rates. And, they have online tools on their site to help calculate your expected rates and monthly repayments.
Your ability to repay your loan (based on your income and debt-to-income ratio) and credit history play a major role when working out your expected rates.
Vet different lenders based on what they charge as the interest rate and settle for the one with the lowest rate. You can use prequalification to compare lender rates without harming your credit score.
Debt consolidation loans generally come in two forms – fixed-rate and variable-rate debt consolidation loans. fixed-rate loans have their interests remaining the same throughout the life of the loan. Variable, on the other hand, changes according to changes in the market.
You’ll therefore choose what best aligns with your financial goals.
Debt consolidation is an excellent way to clear your debts, boost your credit score, and save on interests. However, mismanaging debt consolidation loans can have you sink deeper into an endless debt cycle. Here are a few hands-on tips for managing debt consolidation;
For borrowers who don’t wish to take the consolidation route, the following are the viable options worth considering;
Debt consolidation with personal loans is a smart move if your new loan has lower rates and more favorable terms compared to your existing debts. Anything out of this scope will either prove more expensive or more demanding in the long run.
No. On the contrary, debt consolidation loans will likely help boost your credit score. Repaying all your loans at once lowers your debt-to-income ratio, a crucial consideration for most credit agencies.
It will likely take you between 12 to 24 months to boost your score after the successful repayment of your last credit.
Debt consolidation will stay for as long as the individual accounts are reported, usually 7 years from the settlement date.
Fees, higher rates, and loss of property offered as collateral are the popular consolidation risks.