How To Get A Debt Consolidation Loan
If your loan application is denied because of poor or no credit, the next step should be to improve your credit score and credit history. To fix your credit, you can find a or research and improve your on your own.
Best Business Debt Consolidation Loan Companies
If you are not sure where to start, know that there are debt consolidation companies that focus specifically on business debt consolidation. There are other organizations that specialize in general debt consolidation, including business debts. Depending on the type of consolidation loan you are looking for, there are a variety of options to choose from.
How Can I Receive A Debt Consolidation Loan
Unlike many other types of financial commitments, applying for a debt consolidation loan is very simple:
Its really that simple. Consolidation loans are beneficial for debtors because they provide you with better interest rates, a set monthly payment amount regardless of balance, and the mere fact that you are not accruing more debt.
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What Is A Personal Loan
A personal loan is money you borrow from a professional lender. It can be used to pay for a variety of personal expenses, such as medical bills, home improvement, and car repairs. Personal loans are also a popular tool to use for debt consolidation. Heres why.
A personal loan will often come with a fixed interest rate and a fixed term. This means all your loan payments will be for the same amount, making them easy to plan for in your budget. Owing a single, predictable payment can be simpler than trying to make multiple payments. You may find this helps you get out of debt sooner.
You also have a choice between secured and unsecured personal loans. Secured personal loans require you to put up some kind of collateral, such as your car or home. These loans can be risky, because if you dont make the payments on time, you could lose your collateral. However, they are often easier to qualify for and may come with lower interest rates than unsecured loans.
What is collateral?
Collateral is something of value that you agree to give your lender if you fail to make your loan payments on time. This could be your house, your car, or another large asset.
Unsecured personal loans do not require collateral, so they carry less risk for you as the borrower. Most personal loans are unsecured.
Bankruptcy Vs Debt Consolidation
Both bankruptcy and debt consolidation can provide a borrower with financial relief. They are, however, fundamentally different. As explained above, debt consolidation is a restructuring of your debt into a single payment. Under the right conditions, it can improve your cash flow and make paying off debt more manageable. It may even improve your credit.
Bankruptcy, on the other hand, should be considered a last resort. It is a legal process that has ramifications for years to come. It is what happens when you have no other options for paying your debts.
In bankruptcy, you can discharge your debt, but be aware of the following consequences:
- It has a disastrous impact on your credit. It will remain on your credit report for six or seven years! If you have had past bankruptcies, it stays for 14 years.
- While the bankruptcy remains on your credit report, it will be extremely difficult to find credit.
- A LIT may sell off your assets to reimburse what they can to your creditors.
- If your future income exceeds a specific amount, you may be required to make payments to your LIT.
- It could make it harder to find a new job. Employers have the right to require a credit report as a condition of offering you a position . Bankruptcy can mean missing out on an offer, particularly for government or finance jobs.
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Best Financial Institutions For Personal Loans In 2022
- MoneyMutual – Overall best lending platform for personal loans, editors pick
- BadCreditLoans – Trustworthy lenders for short term loans for bad credit
- RadCred – Get monthly installment emergency loans with fair credit score
- CashUSA – Reliable online loans fast approval with speedy cash
- PersonalLoans – Instant approval loans for best personal loans for bad credit
Extending The Loan Term May Cost Less
Another way that consolidation can cut your monthly outgoings is by letting you extend the repayment period. With most borrowing the longer you take to repay the more interest you’ll pay, although for some people reducing their repayments is worth it.
However, as a debt consolidation loan will usually have a lower interest rate than your existing financial products, you may find you could borrow over a longer period and still save money.
For example, let’s say you owe £10,000 which you consolidate into a loan at 6% APR , with repayments lasting for five years. Your monthly repayments would be £193.33, meaning you’d pay total interest of just under £1,600.
Compare that to a or personal loan with an APR of 16% over three years. Then your monthly repayments would be £351.57 and you’d pay £2,656.53 in interest over that shorter time.
Take the time to compare debt consolidation loan rates and do the sums for your own circumstances – you could be surprised.
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What Are The Pros And Cons Of Debt Consolidation
Debt consolidation comes with various advantages and disadvantages. For instance, it may help you streamline finances, expedite your payoff, lower your interest rates and reduce your monthly payments. However, it may come with added costs, an increase in total interest paid over time and the urge to increase your spending.
When Can You Consolidate Your Loans
The best time to consolidate student loans, or look into other financing options for debt, is after graduation. Dave Schiller, founder and managing partner at Aegis Wealth Partners, LLC, said borrowers can look into consolidation for loans any time after graduation. This includes during their six-month initial grace period.
You can consolidate federal loans to make a single loan if that is simpler for the borrower, but if the borrower wants to see if they can lower their monthly payments from the standard 10-year repayment plan they would need to consolidate eligible loans first, then select an income-driven payment plan, Schiller said.
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Make Sure You Will Be Paying Less
Compare the interest rate for the new loan as well as the fees and other costs against your current loans. Make sure you can afford the new repayments.
If the new loan will be more expensive than your current loans, it may not be worth it.
Compare the interest and fees on a new loan with your current loans.
Remember to check for other costs, such as:
- penalties for paying off your original loans early
- application fees, legal fees, valuation fees, and stamp duty. Some lenders charge these fees if the new loan is secured against your home or other assets
Beware of switching to a loan with a longer term. The interest rate may be lower, but you could pay more in interest and fees in the long run.
Personal Loans And Debt Consolidation
So whats the difference between personal loans and debt consolidation? And when are they the same?
Personal loans can be used for a variety of purposes. Debt consolidation is one of these purposes.
Debt consolidation can be accomplished by several different methods. Taking out a personal loan is just one of these methods.
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Best Debt Consolidation Loans For August 2022
Save money by combining your high-interest debt into one lump-sum personal loan.
Pallavi Kenkare
Pallavi is an editor for CNET Money, covering topics from Gen Z to student loans. She’s a graduate of Cornell University and hails from Atlanta, Georgia. When she’s not editing, you can find her practicing bookbinding skills or running at a very low speed through the streets of Charlotte.
If you have existing credit card, medical or other personal debt, keeping track of payments and getting hit with high-interest charges can be overwhelming. Debt consolidation allows you to combine your debt into a new, lower-interest loan. With the Federal Reserve expected to raise interest rates even higher this year, if you’re considering a debt consolidation loan, now is the best time to lock in a low rate.
A debt consolidation loan combines all your high-interest debt into one personal loan, giving you a lump sum you can use to pay off credit cards, medical bills and other debt. By consolidating multiple payments into one fixed monthly payment, a consolidation loan means your debts will be easier to manage and you can simplify your repayment plan.
We’ve evaluated major debt consolidation loan providers and highlighted the best options below. We’ll update this list regularly as terms change and new loan products are released. Note that all of the starting annual percentage rates, or APRs, that are listed are based on a high of 800 or above.
Rates as of Aug. 3, 2022.
Best Credit Union And For Quick Funding: First Tech Federal Credit Union
- Time To Receive Loan:0 Days
- Loan Amount:$500 – $50,000
First Tech Credit Union stands out for its wide range of loan amounts and low maximum APR. Borrowers can go from application to funding in as little as one business day, and payments can be sent directly to your creditors.
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Low maximum APR of 18%
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First payment can be deferred for 45 days
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Same-day funding available
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Must be a credit union member to apply
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Lowest rates only available for 24-month term
First Tech Federal Credit Union was founded in 1952 and has physical branches in eight U.S. states. The credit union offers personal loans for debt consolidation across all 50 states, with terms that can be attractive for borrowers with a variety of needs.
Personal loans from First Tech range from as little as $500 up to as high as $50,000, and borrowers can choose from a 24- to an 84-month repayment period. The credit union also allows joint applications and co-signers.
It only takes a few minutes to complete an online application for a personal loan from First Tech Credit Union. From there, applicants who are approved can expect to receive funds in as little as one business day.
The maximum APR of 18% is relatively low . First Tech charges no origination fee or administration fee, and it has a fairly unique loan feature: You have the option to delay the first payment for 45 days. Borrowers should note that loans may accrue interest during that time.
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Best Personal Loans For Debt Consolidation
On This Page
Paying off high-interest debts, like credit card debt, can be challenging. Debt consolidation is one way to make these debts more manageable. Combining your debts into one account gives you a single monthly debt payment with a lower interest rate.
When looking for a debt consolidation loan, seek out options with low-interest rates, affordable repayment terms and little to no fees. MoneyGeek analyzed a broad range of lenders to help you find the best personal loans for debt consolidation for your needs.
Best Personal Loans For Debt Consolidation For 2022
Debt consolidation is a way to combine some or all debts into one new credit line. This way, your debts are contained in a single monthly payment instead of multiple bills.
While debt consolidation doesnt erase your debts, it can help lower your overall interest rate and monthly payment and make it easier to pay off credit cards, medical debt or other unsecured debts. A personal loan is one way of consolidating debts.
MoneyGeek evaluated different lenders using more than 35 individual data points to determine the best personal loan lenders for debt consolidation. Based on our analysis, Lightstream is the top option for borrowers who need a debt consolidation personal loan.
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What Is A Good Interest Rate On A Debt Consolidation Loan
Traditional banks start debt consolidation loan interest rates at around 7%. Alternative lenders start their rates around 13%, but they can range to above 40%.
Rates depend on your financial situation, credit score, the amount borrowed and whether the loan is secured or not. Shop loan offers to get the best rate for you.
When interest rates are lower than what you are currently paying, debt consolidation loans are a powerful tool for restructuring what you owe.
Beware of high-interest loans and work with a lender you trust. Excessive interest can make it difficult to get out from underneath your debt.
A Guide To Obtaining A Personal Loan
Personal loans can be a great way to finance large purchases, consolidate debt, or combine loans into one payment. However, before taking out a personal loan, its important to understand the difference between secured and unsecured personal loan. A secured loan is backed by collateral, such as a house or car, which the lender can seize if you default on the loan. An unsecured loan doesnt have any collateral and may be more difficult to qualify for or come with higher interest rates.
Different financial and credit unions institutions offer personal loans that can greatly differ in amount. These types of personal loans are usually short-term, lasting from one to five years. There are often few restrictions on what the personal loan may be used for.
Personal loans are commonly used for the following purposes:
- Boats and RVs
- Bills related to health care
- Bills for veterinary care
- Renovations at home
If youre looking for a personal loan, there are a few different places you can go. Banks, credit unions, and online lenders all offer personal loans with varying terms and conditions. Some of the best deals on personal loans can be found online, so you dont even need to visit a physical location to be approved.
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Is A Home Equity Loan The Best Way To Consolidate Debt
If youâre in solid financial standing, leveraging your home equity to get rid of high-interest debt faster is a smart move. However, if you donât plan to stay in your home long, or arenât confident that your income will be stable throughout the repayment period, you might be better off choosing an alternative method of consolidating debt.
Can I Use Any Personal Loan For Debt Consolidation
Most personal loans allow a variety of uses, and while most include credit card consolidation or debt consolidation, not all do. Make sure to read the fine print of any personal loan you’re applying for, and make sure that debt consolidation is an acceptable use of your loan. All of the loans we considered had an option to use the loan for debt consolidation, if not a separate loan, which we included details for.
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See If Your Cellphone Plan Is The Best Deal
It may be worth checking to make sure the cellphone plan you have is still the most appropriate one for you. If you are paying for much more data than you actually use, for example, you may want to check to see if you can save by changing plans or carriers. By the same token, if you financed your phone as part of your monthly bill, and now it’s paid for, it may be time to make sure you are getting the best deal.
If you have cellphone and internet services from different providers, check to see if bundling will save money.
How Much Can You Save Using A Debt Consolidation Loan
To demonstrate the savings of a consolidation loan, lets say you have two credit cards with one holding a balance of $3,000 and another with a balance of $2,000. Assuming youre making monthly payments of $200 to each credit card, how long will it take to pay it off, and how much interest will you pay?
Similarly, well calculate how long and how much it would take to pay off the credit cards if you consolidated it into a personal loan. For this example, well assume youve secured a 2-year personal loan with an interest rate of 7.5%.
| $480.98 | $400 |
As you can see in the table above, by consolidating your loan, you would save $286.95 on interest and youd be paying $175 less each month. The only downside is that youd be making payments for a longer period of time.
However, if you lower your term to a year and increase payments to $434 a month, you can pay off your loan within 12 months, and only pay $208 in interest.
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