Best Debt Consolidation Loans

Last Updated: February 10, 2019 in Loans • 

Most people have several credit cards and other debts like mortgages or student loans. An appropriate amount of debt, in and of itself, is not a problem.

Debt becomes a problem when you no longer can meet your payment terms. If you are having trouble making payments on even one card or having to choose which cards you will pay on time, your debt is becoming unmanageable. The minute you miss a payment, or make a payment late, your credit rating will be affected across the board.

One credit card company can increase your interest rate based on a missed payment on a completely different card or a slight decrease in your credit score. Then, your credit score will continue to decrease until you get things under control.

A debt consolidation loan can help you save hundreds of dollars each month on interest, penalties and fees.

You are paying a lot of money for interest by carrying a balance on multiple cards. And, if you have made late payments or failed to pay the minimum balance, the credit card company is charging you additional hefty fees on top of your interest payments. Penalty payments and a higher interest rate on multiple cards can add up to a lot of money each month. This is money that you do not have to spend if you can consolidate your debt into one loan payment each month.

A debt consolidation loan can help you save hundreds of dollars each month on interest, penalties and fees. If you have credit card debt on several cards or other kinds of debt such as home mortgages, second mortgages, student loan debt, auto loans or other personal loans, combining all your debt into one loan and making one payment might be a smart move for you.

What Is A Debt Consolidation Loan?

You will obtain a loan that is equal to the total amount of your debt from all sources, like credit cards and car loans for example. You use the funds from the loan to pay off in-full all of the credit that you owe and bring your balances on those accounts down to zero. Then, you will make one monthly payment to the lending bank until you pay off the loan.

Why Would You Do This?

You would want to consider taking out a debt consolidation loan for two main reasons. It is easier to remember to make one payment each month, than it is to make several payments for bills due at staggered dates. Also, the amount of the single payment you will make each month is generally less, a lot less, than the total of several individual payments.

The interest rate for a debt consolidation loan is significantly less than the interest rate on individual, unsecured credit cards or your other loans. You will save a noticeable amount of money each month that you can put toward making a larger principal payment.

Who Offers Debt Consolidation Loans?

There are several types of businesses that offer these loans, including banks, credit unions and private services. However, if you have bad credit already, your options will be more limited, especially with banks. Loan consolidation services are quick to offer solutions but be sure to investigate the service you choose to work with.

People with bad credit often find better options with peer-to-peer and marketplace platforms that connect private lenders with borrowers. Credit unions also offer decent loan terms to their members with less-than-perfect credit.

Problems You Can Avoid With A Debt Consolidation Loan

A consolidation loan can eliminate a lot of headaches and stress that come from trying to balance a lot of high payments on a very tight budget.

Interest rates on credit cards can be extremely high, even close to 30% in some cases. If you’re having trouble making monthly payments, most of what you are paying is interest only, leaving an untouched principal balance that could live on forever.

The worse your credit score is, the higher your interest rate will usually be. This makes it even less likely that you will ever pay off the credit card or loan debt.

Missing payments will usually increase your monthly payment amount by a penalty or fee on top of the principal-and-interest minimum-payment amount. If you’re already on a tight budget, things will only get worse because you can’t make the increased, minimum payment.

The student loan programs are constantly changing, even more now. If you already have several loans, all with different terms, coordinating payments once you have to start making them, will be challenging.

Should You Use A Debt Consolidating Service?

Debt-consolidating services try to help you with the debt consolidation process by working with your creditors to reduce the debt you owe. They also offer consolidation loans directly. While many of these services are legitimate, others promise to get the credit card companies to reduce your debt to amounts that lenders will not likely accept.

They usually charge very high interest rates on the loans they offer, even though the monthly payments might be lower. That really means that you are paying the loan off over a longer period of time. You could end up paying more in interest than if you simply kept your credit cards intact and paid them off. Their “service” fees are often quite high.

They may have some success reducing your debt, but beware of two things. The amount the creditor will write off is probably not as much as the service promised, if anything. Any amount that a creditor writes off is subject to being taxed when you file your federal and state returns.

You Will Feel Less Stressed When You Have Room To Breathe In Your Budget

Having bad credit does not mean that you have no options. Take a look at some of the lenders we recommend to see whether you qualify for a loan.

You can order your credit score before you apply for loans. That way, you can limit the applications you make to only lenders who offer loans for people with credit scores in your range.

You do have options to simplify your debt, consolidate it and improve your credit score in the process with one of the lenders here.