The Ultimate Guide to Debt Consolidation Loans – Everything You Need to Know
Rolling debt into a consolidation loan can save money by lowering your interest rate, making your monthly repayments easier to manage, and helping you improve your credit rating. But it’s essential to choose the right loan for your situation.
A debt consolidation loan will only help if you spend your money wisely and avoid incurring more debt. Get advice from a credit counseling organization to address core spending issues.
Getting a Consolidation Loan
You can consolidate all your debts into a single monthly payment by getting a debt consolidation loan. It also typically has a lower interest rate than credit card rates, saving you money in the long run.
Lenders review your credit reports and scores when deciding whether to approve the loan. Each new application triggers a hard inquiry on your credit, which can temporarily knock your scores down.
Before applying, list your outstanding debts and how much you owe on each. Write down the total amount owed in one column and the monthly payments due in another. Then add up the amounts and your current interest rates to calculate how much you need to borrow for a debt consolidation loan. It’s a good idea to shop around for the best rates. And look for lenders, like Symple Lending, that allow prequalification, which uses a soft inquiry and won’t hurt your credit score.
Consolidating Your Credit Card Debt
If you have credit card debt, a debt consolidation loan can help you make more manageable payments by paying off those balances with a new, lower interest rate. However, it would be best if you were disciplined enough to stick to a repayment plan and avoid adding more debt to the balance with new spending.
To be eligible for a debt consolidation loan, you need a good credit score and show that you can make monthly payments based on your income. Lenders use your information to establish how much to lend you, your monthly payments, and your interest rate. Some lenders offer a preapproval form on their websites so you can check rates without doing a hard pull on your credit. A knowledgeable associate at Symple Lending can help you with this.
To calculate how much you need to borrow, list out the total amount you owe on your credit cards in one column, and then in another column, add your monthly take-home pay or how much you earn each month after taxes. You may also find a helpful debt repayment calculator online to compare your options.
Consolidating Your Loans
If you want to consolidate debt, gather the information your lender needs. It may include proof of identification, a utility bill to verify your address, a pay stub or bank statement to verify income, and cosigner information if needed.
After your application is approved, the lender will send funds directly to your creditors to pay off any outstanding balances. You will then make one loan payment each month.
A debt consolidation loan could save money by lowering your interest rate or extending your term. However, it would be best if you were prepared to stick with a repayment plan and avoid running up new balances on the card you used to consolidate. Otherwise, you’ll be in the debt cycle again and pay more in the long run. Many borrowers find themselves back in debt shortly after becoming “debt-free.” This is because they may have reverted to their old spending habits. That’s why it’s essential to prepare a budget before applying.
Consolidating Your Debts Into One Payment
Debt consolidation can be an intelligent strategy for borrowers with good credit who can keep up with their debt payments. However, it’s essential to weigh the pros and cons of this repayment strategy (and how it might impact your credit scores).
A personal loan or balance-transfer credit card can consolidate multiple debts into a monthly payment. This could help you save on interest rates and pay your debts faster.
When shopping for a personal loan, you must provide your lender with the names, addresses, and account numbers of all your outstanding debts. This information is typically required to obtain approval for a debt consolidation loan. Remember, a debt consolidation loan only puts a band-aid on your debt problems; you still need to work to change your spending habits and beliefs around money. Otherwise, you’ll probably end up back in the same debt cycle — or even worse.
