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Dealing with high interest debt – like credit cards or medical bills – can be overwhelming. If you are faced with this type of debt, you are not alone: in 2020, Americans had an average credit card balance of over $ 5,300, according to Experian. In addition, about one in four said they had difficulty paying their medical debt, according to The Commonwealth Fund, a foundation dedicated to improving our healthcare system.
One way to save money and even speed up your repayment is to take out a debt consolidation loan – a type of personal loan that combines multiple debts into one loan. Compare your prequalified rates on debt consolidation loans from the list of lenders below in two minutes:
Debt consolidation loans can be used to combine a wide variety of debts, such as:
Personal lines of credit
Unsecured personal loans
Pros and Cons of Debt Consolidation Loans
There are several advantages to using personal loans for debt consolidation, including:
- Could lower your interest rate: Depending on your credit, you may be entitled to a lower rate on a debt consolidation loan than the rates you paid. It could help you save money on interest and pay off your debt faster.
- Can help you simplify your reimbursement: If you consolidate your debt with a personal loan, you will only have one monthly payment to pay. This could make it easier to manage your debt.
- Could reduce your monthly payment: You can also opt for a longer repayment term to get a lower monthly payment, which takes the pressure off your budget. Remember that choosing a longer term means that you will pay more interest over time.
But, as with any financial product, a debt consolidation loan has potential drawbacks, including:
- Loan fees: Lenders may charge a fee to secure your loan. It can be a fixed fee or a percentage of the amount you borrow. Either way, it’s important to consider these costs when deciding if a debt consolidation loan is right for you.
- A lower rate may be temporary: Lenders may offer “teaser rates” that are lower than your current interest rates. But these rates may increase after the end of an initial promotional period.
- May increase total interest charges: One way to get a lower monthly payment is to take a longer repayment period for your debt consolidation loan. But it could mean that your total interest charges will increase over the life of the loan.
Compare personal loan rates
How to Apply for a Debt Consolidation Loan
If you are ready to take out a debt consolidation loan, follow these four steps:
- Research and compare lenders. Make sure you compare as many personal lenders as possible to find the loan that’s right for you. Consider not only the interest rates, but also the repayment terms and fees charged by the lender. Note that some lenders allow co-signers on personal loans, which could make it easier to get approval if your credit is poor or acceptable. Even if you don’t need a co-signer to qualify, having one could earn you a lower rate than you would get on your own.
- Choose a loan option. After comparing the lenders, choose the loan option that best meets your needs. For example, maybe you want to get the lowest possible interest rate. Or maybe you prefer a longer repayment period to reduce your monthly payment (although you will pay more interest over time).
- Complete the request. Once you have chosen a lender, you will need to complete a complete application and submit all required documents, such as tax returns or pay stubs.
- Get your loan funds. If you are approved, the lender will ask you to sign the loan so that you can get your money back. The financing time for a personal loan is typically a week or less – although you can get your funds as early as the same day or the next business day after approval, depending on the lender.
Before getting a debt consolidation loan, be sure to consider as many lenders as possible to find the loan that best meets your needs. You can view your prequalified rates from multiple approved personal lenders after filling out just one form on Credible’s site.
What has been the impact of the coronavirus on debt consolidation loans?
In general, the coronavirus shouldn’t have an effect on your ability to get a debt consolidation loan. You will still need good to excellent credit as well as verifiable income to eventually qualify for a debt consolidation loan. Note that some lenders may also have more stringent requirements to ensure borrowers will be able to repay their loans despite the pandemic.
If you’re having trouble making loan payments due to COVID-19, be sure to contact your lender to see if they have any financial hardship programs. For example, SoFi offers 30-day forbearance periods as well as potential extensions for borrowers affected by the pandemic.
If you decide to take out a personal debt consolidation loan, consider considering as many lenders as possible to find the loan that’s right for you. You can compare the prequalified rates of several lenders in about two minutes.
Kat Tretina is a financial writer specializing in topics such as college finance, investing, and savings. His work has been featured in The Huffington Post, Entrepreneur, MarketWatch, etc.