A Decision You Should Consider Now If You Have A Lot Of High Interest Debt
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Dealing with high interest debt, like credit cards or medical bills, can be overwhelming. If you are faced with this kind of debt, you are not alone: in 2020, Americans had an average credit card balance of over $ 5,300, according to Experiential. In addition, about one in four people said they had difficulty paying their medical debts, 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:
Compare personal loan rates
Debt consolidation loans can be used to combine a wide variety of debts, such as:
Private student loans
Personal lines of credit
Unsecured personal loans
Pros and Cons of Debt Consolidation Loans
Several advantages come with using personal loans for debt consolidation, including:
- Could lower your interest rate: Depending on your credit, you may be eligible for a lower rate on a debt consolidation loan than the rates you paid. This could help you save money on interest as well as pay off your debt faster.
- Can help simplify your refund: If you consolidate your debts 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. Just keep in mind 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. This can be a lump sum 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.
- The lower rate may be temporary: Lenders may offer “interest 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 go up 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 to take out personal loans, which can make approval easier if you have poor or average credit. Even if you don’t need a co-signer to qualify, having one could give 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 suits your needs. For example, maybe you want to get the lowest possible interest rate. Or maybe you prefer a longer repayment term to lower your monthly payment (although you’ll 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 sign you for the loan so that you can get your money back. The financing time for a personal loan is usually 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 a loan that best meets your needs. You can see your prequalified rates from several approved personal loan lenders after filling out just one form on Credible’s site.
How has the coronavirus impacted 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 potentially 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 repaying your loan 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, be sure to consider 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, and more.