Debt Consolidation

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Debt Consolidation Loans

Credit card debt can seem like a life sentence. You realize that making your minimum monthly payments will never get you out of debt, and if you miss a payment, your credit score will take a hit. That’s caused you to consider options such as debt consolidation. If you have a lot of credit card debt, a debt consolidation loan might be your best path forward. Learn more about debt consolidation loans, so you will know if this is the right choice for you.

If you take out a personal loan, you can use the money for anything you like. You can use the funds to go on vacation or pay for a wedding. You can even use the money to fix up your home. While those are popular options, many people choose a personal loan to consolidate debt.

If you choose this option, you will roll your unsecured debt into a single loan. You’ll use the loan to pay off the unsecured debt. Then, instead of making several credit card payments each month, you’ll just have to pay toward your debt consolidation loan. 

Debt Consolidation

Process

Debt consolidation loans are typically a fixed rate, which is much more attractive than balance transfers on credit cards. The lender will look at your credit profile, including your debt-to-income ratio, when determining your interest rate. Interest rates are generally between 10 percent and 32 percent for these loans.

You have the option to negotiate the debt yourself or to hire a company like Debt Defenders to negotiate on your behalf. If you choose to handle it yourself, you’ll need to contact the creditors. Ask the creditors to agree to accept a lower amount and then get it in writing. Then, you will need to pay the debt based on the agreement. Failure to do so will void the settlement offer.

Handling this yourself can be time-consuming and overwhelming. If you want to go the easier route, you can have a debt settlement company work for you. Debt settlement companies have the experience necessary to negotiate with creditors, so you can pay much less than what you owe.

Is a Debt Consolidation Loan Right for You?

Many people like getting debt consolidation loans. First, of course, the loans simplify the payment process. Instead of paying multiple lenders, you only have to make one loan payment. You can also expect a lower interest rate and get out of debt faster.

Even with these benefits, debt consolidation loans aren’t for everyone. Before you sign on the dotted line, make sure that a debt consolidation loan is a wise choice for your situation.

Check Your Eligibility

First, you need to see if you’re eligible for a debt consolidation loan. Start by looking at your credit score. If you’ve been struggling to make your payments, your score might have paid the price. If your credit score is too low, you’ll have a hard time getting a debt consolidation loan. Even if you can get a loan, you’ll have trouble getting a favorable rate.

You also need to consider the amount you need. Lenders are only willing to provide so much in unsecured debt. Many lenders won’t go above $50,000, and to get that much, you need to have a solid credit profile. If you owe more than that, a debt consolidation loan might not be the right choice.

Check Your Finances

You also need to check your finances to see if you can make the monthly payments. Debt consolidation loans help you get out of debt faster, but the monthly payments might be higher.

For example, let’s say you are drowning in $15,000 of credit card debt. The interest rate is 16.99 percent APR, and your minimum payment is about $450 a month. If you continued to make the minimum payment, it would take you over 21 years to pay the credit card off.

Now let’s say you get a debt consolidation loan to pay that credit card. The term is 36 months, and the APR is just 13 percent. You’ll be out of debt in three years instead of 21 years, but your payment will go up to $505 a month from $450 a month.

Many people are willing to trade the higher payment to get out of debt faster. Still, if you cannot afford to pay the extra money, you need to consider other options instead. Otherwise, you might default on the loan.

The Ideal Candidate

Are you still unsure if a debt consolidation loan is the right choice? Look at the ideal candidate to see if you’re a good fit.

The ideal candidate owes between $1,000-$50,000 in unsecured debt. The candidate can make the monthly payments on the loan without problems. Also, the best candidate has an excellent credit score and can get the best rate.

The best candidate also understands that he or she needs to change spending habits going into the future. Otherwise, the debt will pile up once again. For instance, if you get a debt consolidation loan to pay off $15,000 in debt only to charge $15,000 once again, you’ll be in the same bad situation.

Considering Debt Consolidation?

Debt consolidation loans are just one of the many options you have for getting out of debt. If you need help getting out of debt, contact Debt Defenders toll-free at (888) 333-3851 for a free consultation or fill out the form below to be called by our debt consultants.

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