A debt consolidation loan is a strategy to combine all loans and pay them off with a low-interest loan. It saves money and eases the payment of bills for consumers with several unsecured loans like personal loans, credit cards, or medical bills. In simple terms, a debt consolidation loan means you’ll borrow an amount that will enable to pay off your loans, then make monthly payments to the loaner.
The good thing about debt consolidation loans is the low-interest rates and the presence of only one check and payment each month. These loans mostly have a repayment period of two to five years relative to the amount borrowed.
Getting a Debt Consolidation Loan
Credit unions, banks, and online lenders are familiar options that offer loans for debt consolidation. Remember that debt consolidations loans do not get rid of the debt altogether. Instead, they reorganize the loan in a manageable way, but eventually, you still have to pay back what you owe.
The idea is great as it helps you to qualify for manageable interest rates. However, it can be great if you walk with a partner like you’ll find at https://www.bills.com/ who will ensure that on top of the low enough interest rates, you also get some loan relief. Isn’t that a great idea?
Before getting a debt consolidation loan:
- Identify the debts that you want to consolidate, primarily credit card debts.
- Check out your budget to determine the amount of monthly payment you can pay after catering for your necessities.
- Request your credit report, which is free, and record all your debts, including others you might have forgotten.
- Lastly, scrutinize your credit score, which is available through several online sources freely.
Advantages of a Debt Consolidation Loan
Getting a debt consolidation loan may be advantageous in the following ways:
- It minimizes the number of loan collection calls from several creditors.
- It enables you to make one payment to one creditor monthly.
- It offers you an opportunity to better your credit score with time by paying off loans in time.
- You can utilize your interests every month if the rate of your cumulative debts is higher than the rate of your consolidation loan.
- You can lower your monthly payments if you lengthen your debt consolidation terms, making you feel relieved.
Qualifying for a Debt Consolidation Loan
Qualifying for a debt consolidation loan requires the borrowers to have good credit scores and enough income to convince lenders that they can repay their loans on time. Debt consolidation loans do not apply only to high credit profiles but getting loans with low rates will need a good credit score.
Borrowers with average credit scores can still qualify for debt consolidation loans but with insignificant savings. If your credit score is terrible, you will have to work on your credit for some months before requesting a debt consolidation loan.
So When is Consolidation a Bad Idea?
As useful as the strategy can be, there are times when getting a debt consolidation loan might be a bad idea. The key benefit of a consolidation loan as a means of debt relief is it allows you to consolidate outstanding debts into one loan.
However, in order for that make sense, the resulting interest rate should be lower than the aggregate you’re currently paying, otherwise there’s no benefit to realize. This matters because there are debt consolidation loans for bad credit out there. However, they carry higher rates of interest and can exacerbate your situation rather than provide relief.
The other concern you need to monitor is the amount of time the consolidation loan will run. If the term of the loan means the total of the payments you’ll make is more than you currently owe—
One more thing to keep in mind; a consolidation loan does not pay off your debt, it simply moves it form one place to another. If you fail to get your spending under control, the accounts you cleared will be beckoning you to use them again, which will dig an even deeper hole out of which you’ll have to work your way.
Long story short, you must do the work to ensure you’ll come out ahead before pursing this approach.