Debt consolidation helps to pay off balance of money such as credit cards or other bills.
The purpose of a debt consolidation loan is to combine several high-interest outstanding debts into a hopefully lower interest one, making your payments more manageable and easier to track, and possibly to help you get out of debt faster.
Various credit scoring models (such as Fico or VantageScore) will often place a lot of weight on the importance of your credit utilization ratio, or the difference between your available credit and how you have used.
Many interest rates for personal loans will average between 6 and 36 percent, with your credit score being a primary factor in determining what you might be offered as a rate and terms. When shopping for personal loans for the purpose of debt consolidation, look not just at the interest rate, but also the repayment terms.
In most cases, a personal loan for debt consolidation would be a positive thing, when used correctly.
An unsecured personal loan used specifically for debt consolidation can not only help you to get out of debt faster, it can also simplify your finances and help to save a heap of money in interest. Since it is an unsecured loan, you are not required to provide collateral. When you have found an opportunity that is suitable and have applied, should you be pre approved the lender would provide further details of fixed rates and set repayment terms.
In most cases, if the individual taking a personal loan for debt consolidation is both practical and responsible with the money they borrow and able to find better interest rates than they might currently pay, then debt consolidation can be a good thing. It would be important to consider any fees and all terms involved and look at the APR, not just the interest rates when calculating whether this is the right option for you.
For some people, they can run the risk of getting themselves deeper into debt when they do not adjust their spending habits or use the personal loan for debt consolidation as intended. Should you use the loan to pay off debt such as credit card balances or similar, then immediately start running up the amount of the balance owed, you would be digging yourself further into debt. You also need to ensure that your budget would be able to handle the monthly payments when they come due since these are fixed terms, and don’t have options like minimum monthly payments on credit cards. To make such a loan work to your advantage requires one to have discipline and refrain from running up more debt.
In addition to paying less in interest and paying off your debt faster, another benefit can be that your credit score could go up once you have paid off outstanding balances with a debt consolidation personal loan.
Even if your credit history isn’t exactly the best, getting a personal loan with bad credit is still a possibility at times. It really depends on your credit score and what lenders you talk to. Some are more adverse to risk and won’t lend to anyone with a credit score under 700, where others are willing to go lower and even into low 600 but you will pay more interest.
The ideal way to find the right lender for your needs is by comparing your options.
Factors that you will want to consider include:
When comparing, lenders that allow you to prequalify can be beneficial since you can get a look at the terms while it is only a soft credit inquiry.