What Are The Benefits Of Debt Consolidation
Debt consolidation offers several possible benefits, including:
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Combine multiple debts: You can pay off several kinds of debt with a debt consolidation loan which leaves you with just one loan and monthly payment to manage.
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Save money on interest: Depending on your credit, you might qualify for a lower interest rate on a debt consolidation loan. Using the loan to pay off high-interest debt can save you money on interest and even help you pay off your debt faster.
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Lower your payment: If you opt to extend your repayment term with a debt consolidation loan, you could reduce your monthly payment. Just remember that youll pay more in interest over time with a longer term.
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Help your credit score: If you use a debt consolidation loan to pay off revolving credit lines , you might be able to lower your credit utilization ratio. This could have a positiveeffect on your credit score.
Additional Resources To Help You Get A Credit Card Consolidation Loan
If youre unable to keep up with multiple payments and simply want one loan and a single monthly payment, a credit card consolidation loan could be the answer. It’s a good way to take control of your credit card debt and hopefully save money along the way.
Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Lenders will conduct a hard credit pull when you submit your application. Hard credit pulls will have an impact on your credit score. Lowest rate advertised is not available for all loan sizes, types, or purposes, and assumes a very well qualified borrower with an excellent credit profile.
Balance Transfer Credit Card
With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.
Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn’t likely to lower your credit utilization ratio like a debt consolidation loan would.
A debt consolidation loan also is going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.
Who this is best for: Borrowers who can pay off existing debt quickly.
Balance transfer credit card vs. debt consolidation loan: Often, balance transfer cards are the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.
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Best Personal Loans For Debt Consolidation Of August 2022
- This lender does not offer prequalification.Estimated Min. Credit Score
- 580Estimated Min. Credit Score
- $2,000 – $35,000Loan Amount
- This lender does not offer prequalification.Estimated Min. Credit Score
- This lender does not offer prequalification.Estimated Min. Credit Score
- 6.95% – 35.97%APR with Autopay Discount
- 550Estimated Min. Credit Score
- $1,000 – $50,000Loan Amount
- 0Estimated Min. Credit Score
- $250 – $50,000Loan Amount
- Time To Receive Loan:1 Days
- Loan Amount:$2,500 – $35,000
Discover Bank offers debt consolidation loans with APRs starting as low as 5.99%. Loans can be received as quickly as one business day, and payments can be made directly to creditors.
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Pre-approval does not impact credit
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Same-day loan decisions
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$39 late payment fee
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No joint applications or co-signers
Discover launched its first financial product in 1985 and is now one of the largest credit card issuers in the U.S. But the company also offers personal loans for debt consolidation in all 50 states.
Discover’s personal loan stands out with APRs that range up to 24.99% but start as low as 5.99%. Loan amounts start low too, from $2,500 up to $35,000, and come with no origination fee, which can make Discover a much cheaper option than some other lenders.
Additional benefits include a rate quote with no hard credit pull. Borrowers can get same-day loan approval and receive funds in as little as one business day.
Benefits Of A Debt Consolidation Loan
A debt consolidation loan can help you pay off debt and improve your financial health when used correctly. Some benefits of a debt consolidation loan include:
Keep in mind, a debt consolidation loan will only help you if you go in with a plan to pay off the debt. Before taking out a debt consolidation loan:
- Calculate the interest and fees to make sure youre saving money
- Build the loan payments into your budget
- Keep track of payment deadlines to make sure you dont miss a payment.
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A Real Example Of Credit Consolidation
Heres an example of how it works when you use a debt management program to consolidate. Lets say you have four credit cards.
| Current Balance |
|---|
New average interest rate : 5.73%
New monthly payment: $303
Time to pay off total balance: 4 years, 10 months
Total estimated interest charges: $2,459.65
In this example, consolidation would:
- Lower your total monthly payments by $324.92
- Allow you to get out of debt six years and three months sooner
- Save you $6,453.33 in interest charges
You still pay back the full balance owed, but you do it in a more efficient way by minimizing interest . Consolidation lowers your monthly payments, the number of payments you need to make to become debt-free, and the total interest charges.
While balance transfers and debt consolidation work differently, the result is the same. You still minimize interest, combine your debts into one monthly payment, and enjoy the same benefits that you see in the example above.
If you have questions about debt consolidation or need help finding the best way to consolidate, talk to a certified credit counselor for free.
What Is Credit Card Consolidation
Edited byAshley CoxUpdated August 3, 2022
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. By refinancing your mortgage, total finance charges may be higher over the life of the loan. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Heres what you need to know about credit card consolidation so you can find the best strategy for your situation:
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Determine The Purpose Of Your Personal Loan
Finally, consider the purpose of your personal loan. If you’re reading this guide, you likely need it for debt consolidation. Nevertheless, different types of personal loans exist to cover any large purchase, personal expense, or consumer debt.
You usually can’t use your personal loans to pay off debt related to business, illegal ventures, or student loans, though. Before accepting your loan funds, clarify your purpose with the provider to ensure that you’ve found the best option for your circumstances.
Can I Get A Debt Consolidation Loan With A Low Credit Score
Youll typically need good to excellent credit to qualify for a personal loan. But some lenders offer personal loans for bad credit though keep in mind that these loans usually come with higher interest rates compared to good credit loans.
If you have poor credit and arent eligible for a personal loan, you have a couple options to consider:
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Apply with a cosigner. If youre struggling to get approved, having a cosigner who has good credit could improve your chances. Not all lenders allow cosigners on personal loans, but some do, including the Credible partners listed below. Even if you dont need a cosigner to qualify, having one could get a lower interest rate than youd get on your own.
Build your credit. If you can wait to consolidate your debt, it could be worth it to spend some time improving your credit so you can qualify for better rates in the future. You can do this in a few different ways, such as paying all your bills on time or paying down credit card balances.
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Dealing With Loans And Credit Card Debt You Can’t Pay After Covid
With coronavirus limiting many people’s ability to work and earn a paycheck, you might find it difficult or impossible to keep up with your loan payments or credit card bills. Fortunately, a significant number of banks, credit unions, and other financial institutions, as well as credit card issuers, are offering assistance programs for those who’ve been financially affected by the outbreak.
Other finance companies and bank subsidiaries offer secured consolidation loans. If the loan is a secured consolidation loan, you have to pledge your house, car, or other personal property as collateral. These loans are just like second mortgages or secured personal loans: You’ll be charged interest at a rate of about 7% to 36% , depending on your credit rating and the security. If you default on the loan, the lender can take the property you used to secure the loan, like by foreclosing on your home or repossessing your car or other personal property. In almost all cases, it’s not a good idea to risk losing your home or other property to pay off credit card debts.
Prequalify Without Impacting Your Credit Score
Youre clicks away from finding the right loan. Answer a few questions and start comparing real offers from multiple lenders within minutes. This wont impact your credit.
- Low APR for borrowers with high income:SoFi
- Reducing high interest debt:Upstart
- Borrowers with poor credit scores:LendingPoint
As of Aug. 10, 2022
| Lending Partner | |
|---|---|
| Rating image, 5.0 out of 5 stars. | Min. Credit Score: 680 |
| Rating image, 4.0 out of 5 stars. | Min. Credit Score: None |
| Rating image, 4.5 out of 5 stars. | Min. Credit Score: 585 |
| Rating image, 4.5 out of 5 stars. | Min. Credit Score: 640 |
| Rating image, 5.0 out of 5 stars. | Min. Credit Score: 660 |
| Rating image, 4.5 out of 5 stars. | Min. Credit Score: 620 |
| Rating image, 4.0 out of 5 stars. | Min. Credit Score: 640 |
*SoFi Personal Loan Disclaimer
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
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Cons Of Debt Consolidation
- May pay fees Debt consolidation may come with added costs in the form of an origination fee on a personal loan or home equity loan, or a balance transfer fee on a credit card. Factor in the additional fees to make sure that consolidating your debt will make financial sense.
- Interest rate may not be lower Theres no guarantee that debt consolidation will result in a lower interest rate. Personal loans can have high interest rates, especially for borrowers with poor credit. If you already have low interest rates on your current debts, then consolidating the debt might not be advantageous.
- Assets could be at risk Depending on the type of debt consolidation you use, you could be putting other assets at risk. For example, a home equity loan is secured by your home, meaning your lender could foreclose on your home if you stop making your payments.
- May not get to the root cause of spending If you havent addressed the root cause of your debt, then your debt consolidation loan could help you pay off your credit cards but tempt you to use them for additional purchases. As a result, you may find yourself in an endless debt cycle.
Is It Better To Pay Off Credit Cards Or Consolidate My Debt
Consolidating credit card debt or simply paying it off are both viable strategies for managing your credit cards. However, the right option for you will depend on your individual circumstances and financial goals.
Paying off your credit cards
If you choose to pay off your credit cards without consolidating them, you wont be able to take advantage of the lower fixed rates that personal loans offer. Additionally, credit card variable rates can fluctuate, which could land you with higher interest charges and prolong your repayment time. Youll also have to keep track of the payments and rates on each card to stay on top of them.
However, if you have relatively small balances on each of your cards and can repay them in a short amount of time, then simply paying off your cards might be an easier option.
Consolidating your credit card debt
If you use apersonal loan to pay off your credit cards, youll be left with just one loan and payment to worry about. Additionally, youll typically have a fixed rate that wont change over the life of the loan. And because personal loan rates are usually lower than credit card rates, you might be able to save on interest over time and potentially pay off your debt faster.
However, if you have poor credit, you could have a hard time qualifying for a better rate. In this case, it might make more sense to simply focus on repaying your credit card balances through on-time payments.
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Best Egg: Best For Fair Credit
- Loan Amounts: $2,000 to $50,000
- 5.99% to 29.99%
- Minimum Credit Score: 640
Best Egg’s straightforward, to-the-point online personal loan platform offers funds to qualified borrowers who need to pay for medical expenses, make a large purchase, or consolidate high-interest debt on their credit cards.
The provider doesn’t come with all of the bells and whistles found on other platforms. For example, you can only choose between two repayment terms. You won’t get a discounted monthly payment when you sign up for automatic payments, either. Nor does Best Egg offer a convenient mobile app to manage your loans on-the-go.
Even so, Best Egg is still a top-ranking option for borrowers with a fair or good credit score. The platform often enables you to qualify for a lower interest rate than those found on credit cards or through other loan providers. You can also take advantage of extended payment periods to minimize your debt burden and repair your credit score.
Like many other providers, Best Egg allows you to prequalify for a loan using a soft credit check. After accepting the loan amount and the repayment terms, the provider will report your on-time payments to all three major credit bureaus. Best Egg charges certain fees, such as originating fees, but you can repay your loan ahead of schedule without worrying about a prepayment penalty.
Can I Get A Debt Consolidation Loan With Bad Credit
Yes, you can get a debt consolidation loan if you have bad credit. Here are a few extra steps you can take to increase your chances of getting approved:
For more information, check out our list of best personal loans for bad credit.
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Final Thoughts On Consolidating Debt
Finding the best debt consolidation loans requires intensive research into rates, fees, and the trustworthiness of loan companies. While many banks offer personal loans, online providers have joined the fray, making the situation more complicated than ever.
Our careful evaluation of the most popular debt consolidation loan providers should be a great place to start your search for the ideal loan that meets your needs. Take the time required to choose one that works for you.
How Can We Help
Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, term length, and making payments as agreed.
A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $16,980 for a term of 36 months, with an interest rate 13.49% and a 6.00% origination fee of $1,019, for an APR of 17.89%. In this example, the borrower will receive $15,961 and will make 36 monthly payments of $576. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.
LendingClub and the LC symbol are trademarks of LendingClub Bank.
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