Guide to Debt Consolidation Loans

Options for Consolidating your Debts

Millions of U.S. adults struggle with the burdens associated with debt every year. Debt comes in many forms, and always causes added stress and pressure on your pocketbook. No matter where your debt comes from or how much debt you have, you definitely want to consider consolidating your debt. For many people, debt consolidation is a good way to pull together debt from various areas under one loan to make it more manageable to pay off. If you are considering consolidating your debt, there are several ways to do so. Many of the most popular and financially smart ways to consolidate debt are discussed below.

Personal Loans for Debt Consolidation

Personal loans are a very popular option for people thinking about consolidating their debt. It is generally easy to get a personal loan. They usually come from banks, credit unions, or in some cases, online lenders. One of the many reasons that personal loans are attractive to people trying to consolidate debt is because they make paying off debt much more easy to manage. If you are paying back debt in several areas, you may have to keep track of two, three, or even more monthly payments. This will certainly increase the chances that you are late on or completely miss a payment. Missing a monthly payment on a loan can have drastic consequences. This can include hundreds of dollars in late fees, with possibly even more added penalties. Even if you do not miss a payment, keeping track of several different debts can often be stressful. So if you are tired of constantly worrying about when each of your monthly payments are due, you should definitely consider taking out a personal loan to consolidate your debt. This way, you only have to keep track of a single payment every month.

Another reason to consider taking out a personal loan to consolidate debt is because of the possibility of saving money. The interest rate on a personal loan depends largely on your credit score. Therefore, if you have a good or great credit score, and have a history of making your monthly debt payments on time, it is likely you will get a favorable interest rate from a bank or online lender for a personal loan. Research and apply for a personal loan to see exactly what interest rate you can get. Once you get an exact number, compare it to your current interest rates and see if you can actually save money by consolidating your debt through a personal loan. In many cases, you can save hundreds of dollars by taking out a personal loan to consolidate your debt.

Key Advantages for Borrowers Using a Personal Loan for Debt Consolidation

Another advantage of taking out a personal loan to consolidate debt is that many of them are unsecured. This means that you do not have to pledge possessions such as your house or car to back the loan. As the size of your personal loan gets larger, some of them may become secured, but for the most part personal loans are unsecured. This can be an advantage because you do not have to worry about losing your house or car if you end up being unable to pay back the loan.

Before committing to consolidating debt through a personal loan, make sure you research whether or not it is the best option for you specifically. Debt consolidation through personal loans, especially if they are unsecured, is best for people with solid credit scores. This is because interest rates for personal loans are often lowest for people who have a good credit history. If taking out a personal loan to consolidate debt does not make financial sense for you, there are several other ways that you can try consolidating your debt.

Credit Card Balance Transfers

Credit card balance transfers work quite simply. If you owe debt on one or more credit card, you can transfer that debt to another credit card. So if you owe debt on two or more credit cards, debt consolidation through a credit card balance transfer may be right for you. Most major credit card companies now offer credit card balance transfers. However, they are not the right approach to debt consolidation for everyone. Two of the key factors in choosing credit card balance transfers to consolidate debt are the new card’s APR, and the balance transfer fee. When applying to transfer debt from multiple credit cards onto one new one, make sure you know about both of these. If you apply for a new credit card, make sure its APR is either equal to or lower than both of your current credit cards. If your new card’s APR is higher than your current cards, you will end up spending money to consolidate your debt. This will just increase your stress, as you will have to worry about paying more to work off your debt.

Low Rate and Zero Percent Balance Transfer Can Be Attractive Options for Debt Consolidation

If you find a credit card that has an equal or lower APR than your current cards, the next step is to figure out the balance transfer fee. If your credit is good or great, many credit card companies will be happy to offer you no fee to perform a balance transfer. In this case, debt consolidation through a credit card balance transfer is the perfect choice for you. Not only will you save money on your monthly payment, but it will cost you nothing to consolidate your debt into one payment. However, if there is some form of a balance transfer fee, you may want to reconsider consolidating your debt this way. If you do not have a good credit history, you may be stuck with a very high balance transfer fee. In this case, do not consolidate your debt via credit card balance transfer. There are other options that may be better suited for you.

Home Equity Loans

If taking out a personal loan or performing a credit card balance transfer are not ideal ways for you to consolidate your debt, taking out a home equity loan may be the right choice for you. Home equity loans can be especially attractive to people who have a great deal of home equity. Many lenders will lend home owners up to eighty or ninety percent of their home equity. This means that anybody with a large amount of home and equity can take out a large home equity loan. Another great feature of home equity loans is that they often have low-interest rates compared to credit cards and personal loans. If you are tired of paying back your debt with the high-interest rates of credit cards and personal loans, debt consolidation through a home equity loan is something that you should definitely consider. Home equity loans also usually offer much longer repayment periods. So on top of a lower interest rate, your monthly payment may be reduced by an even larger amount because of a loan repayment period that can be as long as fifteen years.

Home Equity Loans Generally Have The Longest Repayment Period But That Is Not Always A Good Thing

Even given these features of a home equity loan, they remain risky for a variety of reasons. First and foremost, home equity loans require you to put your house on the line. If you have any doubt that you may be unable to meet your monthly payments, reconsider taking out a home equity loan to consolidate your debt. If you miss even one of your monthly payments, the lender may choose to foreclose on your house. This is a significant risk associated with any home equity loan. Another huge risk that is largely out of your control is the possibility that the value of your home decreases. If the value of your home takes a drastic dip, and you owe more on your house than it is worth, having a home equity loan is a nightmare scenario. If this were to happen and you decided to forfeit your house, your credit score and loan history would instantly become a problem. Even if you got back on track financially, you may find it nearly impossible to take out loans in the future because of this.

The portal is managed by a group of passionate writers who love personal finances, saving money and helping others. Don is the author of this page, he enjoys helping borrowers navigate the nuances of achieving their personal goals and saving money.  

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  • Short-Term Lending and Personal Loan FAQ Guide

    Borrowing money for the first time can be intimidating. There is a whole range of financial tools used by lenders to determine the borrower’s creditworthiness. For good reasons, however, personal loans and short-term lending are increasingly becoming popular for covering sporadic and massive expenditures.

    Here’s a guide that covers short-term lending and finding the best personal loan that suits you.

    What are business needs suitable for short-term financing?
    Different types of short-term lending are appropriate for varied business needs. Examples of needs projected to have short-term ROI include physical renovation, hiring new staff, and purchasing new equipment.
    Is APR an ideal way to make cost calculations?
    The annual percentage rate is only a single way to represent total interest cost and fees as a yearly payment which may appear higher than the overall cost of a short-term loan. When you look at other factors like the total cost of your loan and different business needs, you’ll realize that a short-term loan would better fit your business needs. At a glance, a short-term loan with a higher APR is more affordable than a long-term loan with a lower APR.
    How long does it take to receive a response?
    Depending on the loan issuer, your credit history and loan amount, the typical wait time could be 45 minutes or less. However, some lenders could take up to 3 working days to approve, it will vary from lender to lender and based on your unique lending needs.
    How does the lender determine the interest rate?
    Your personal short-term loan interest rate is determined based on your risk profile. The general rule is that the lower your credit score, the higher the risk. Lower risk means a lower interest rate, and higher risk means a correspondingly high interest rate.
    How long will I have to repay the loan?
    You’ll have to begin repaying the loan within 30 days in installments. Most lenders provide repayment terms ranging from six months to six or more years. The interest rate and monthly payment will be impacted by the period you choose to repay the loan.
    Are there other fees associated with personal loans?
    Creditors may charge sign-up, processing coupled with landing fees. In most cases, these charges are billed only once and are often outlined in the application documents. Although it’s not uncommon to have obscured payments, hidden fees would generally add up between 1 to 5% of the entire amount.
    Do I need a good credit score?
    Before you start applying for a short-term personal loan, it’s crucial to know you’ll qualify with your credit score. Most loan issuers are looking for customers with good credit scores. However, if you have a good relationship with the creditor, you may get a favorable term, particularly if your account shows a history of timely payments and honoring the terms of past loans.
    Can I get a loan with a low credit score?
    Loan issuers have different loans designated for people with varying credit scores. Lending options meant for consumers with bad credit are, without a doubt, different from those with good scores. While a higher score boosts your approval chances and gives you favorable terms, there are specific loans meant for people with low credit scores.
    How do I apply for a short-term personal loan?
    Once you’ve identified the financing option ideal for you, assemble all the documentation needed. Do not yield to the pressure to have money as soon as possible to offset the chances of making a shoddy application. It’s always good to fill the documents comprehensively, attach personal information, your resume if needed, business and personal tax returns, financial statements, and the collateral value that may be required.
    Will the lender approve my application?
    Your business and personal credit will be essential metrics in determining a lender’s decision. At its core, one of the handiest tools used by the lender is looking at your credit score. At the same time, other factors include your debt ratio, business debt, revenue trends, personal and business debt coverage.

    How do I improve my chances of getting approved?
    It sounds harsh that most loan requests are rejected. Looking at the reasons that contribute to applications’ inevitable rejection, the ideal way to improve your standing is to build your credit score. Aside from convincing the lender that you’re better suited for approval, a healthy credit score helps you qualify for favorable interest rates.

    Personal Loan Markets

    Innovative Finance helps connect consumers who are searching for help with consolidating debt, home improvement projects, credit card consolidation and more with online personal loan lenders. If you are searching for an online, unsecured loan product and live in these markets, we have lenders who may be able to assist you.
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