So, you’ve heard a bit about debt consolidation and think it might help you finally get rid of your worrisome high-interest credit card obligations. But there are a few things to know when looking for a debt consolidation loan. Here are some of them.
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Consolidation Streamlines Bill Paying
Debt consolidation is the process of combining multiple debt payments into a new, single loan with the same payment monthly, and usually results in a lower interest rate and quicker loan payoff. It also makes bill paying more manageable.
Some lenders even offer flexible loan amounts and repayment terms from which to choose, allowing the borrower to find the best personal loan for them.
Consolidation Can Decrease Your Interest Rate
Credit cards have notoriously high-interest rates. Consolidation combines those debts into a loan that, ideally, carries less interest than what you’re paying in total on the plastic. This is mostly contingent on your having healthy credit, however.
Also, many personal loans offer fixed interest rates, so you’ll be paying the same amount each month. That takes the guesswork out of bill paying while saving you cash.
Consolidation Can Help You Avoid Credit Score Penalties
Debt consolidation is an efficient way of remedying your current debt woes, but it can also help you establish wise money-management habits that can help you down the road. Just remember, it all starts with your credit score.
Your score represents the information that is in your credit report at a given time and can change whenever your credit profile changes. While there are lenders that cater to those with subpar credit, debt consolidation works best for those who have a solid credit file.
Consolidation Can Be Empowering
Using a personal loan to consolidate high-interest debt can help you take better control of your bills. Because they have a fixed interest rate and set payoff date, these loans can help you budget and plan your financial future.
In turn, this can motivate you to stay atop your finances in the long term. You’ll also likely be more confident making financial decisions moving forward.
You Must Choose The Right Lender
When looking for a debt consolidation loan, painstakingly research all options. First and foremost, make sure the lender is reputable. There are some bad actors out there who are more than willing to take advantage of your situation.
Contact your state attorney general’s office to see whether there have been any complaints against lenders in which you’re interested.
Also, some lenders charge up to five percent of the loan as a processing fee — often called an origination fee — in addition to early repayment fees.
Make sure you consider these fees before agreeing to them to understand your total loan cost. There are lenders that don’t charge such fees, however.
Focus On Paying Off Your Principal
Your credit cards can wind up consisting mainly of interest amount rather than the principal amount borrowed. If you tend to only make minimum payments, you’re basically just paying off interest — a sure way to fall into debt trouble.
Plus, you’re making no progress toward eliminating the debt. This is where debt consolidation can help: it can spring you from what can seem like a hamster wheel of spending.
So, those are some of the things to know when looking for a debt consolidation loan. With a solid commitment to getting rid of debt, a personal loan can give you the start you need for a better financial future.