There are numerous ways to consolidate debt and we want to help you achieve this goal. A debt consolidation loan is a loan that is used to pay off high-interest debt from many sources like credit cards, personal loans, and auto financing. Once the new debt consolidation loan is completed, all of the outstanding principal and interest from your existing debt is paid off, and the new debt consolidation loan starts with a new loan that should have a lower interest rates and reduces your existing monthly payments.
There are many types of debt consolidation to consider and one or many of these loans may help you. See the quicklinks along the right side to go directly to the section that may apply to your curcumstances.
Eliminating Debt using Debt Consolidation
Eliminating debt is the first step to financial freedom. If you're struggling to keep up with your current monthly payments or if you're only making the minimum payment on high-interest credit cards or credit lines, a debt consolidation loan may be a solution to reducing your monthly debt load. Debt consolidation will improve your credit score when all of your credit cards and loans are paid off.
Interest Rate on a Debt Consolidation Loan
The purpose of a debt consolidation loan is to lower your monthly interest expense and pool your debt into one loan. The interest rate offered by lenders is calculated using credit score, credit history, and in some cases, job history.
Find a Debt Consolidation Loan with no Prepayment Penalties
Your credit score can improve very quickly after paying off all of your credit cards and amalgamating debt. Try to find a debt consolidation loan now with no prepayment penalties, and reapply for another loan at a lower interest rate after your credit score improves. Your credit score will improve quickly, and your interest rate will drop significantly after a short period of time if you make all payments on time .
Value of a Debt Consolidation Loan
If your credit score is 580 to 640, you will be paying 25-35% interest. Depending on the circumstances, 25 to 35% interest can be a great improvement over payday loans but may not worth your while with credit card interest fees near the same amount. The decision with credit card debt vs. a debt consolidation loan comes down to your ability to be disciplined with paying down the credit cards without getting the loan.
The amount of capital you can borrow unsecured will be determined by your credit score. A quick rule - below 660, the maximum amount you can borrow will be below $50,000 without security. If your credit score is 660+, there are lenders that offer unsecured debt consolidation loans up to $100,000 online. If you have security, the loan amount will depend on the equity in your home or other assets that can be used to secure the loan financing.
Debt Consolidation Loan Offers
A debt consolidation personal loan from SoFi has low-interest rates and a fixed monthly payment for paying off credit cards, home improvements or make a major purchase.
Members get a 0.125% rate discount on an additional SoFi loan—just for being a member.
Financial Advisors – Members get complimentary guidance from licensed financial advisors. We alsFo waive our fees to invest with SoFi Wealth for members.
Upgrade was started by two of the founding member of Lending Club, a pioneer in marketplace lending. They were part of facilitating $33 billion in loans and made credit available to over 2 million America families over the last decade.
Through Upgrade, consumers can access affordable personal loans from $1,000 to $50,000 with low fixed rates that never change. Personal Loans may be used to pay off high-interest credit cards, make home improvements, make a major purchase and much more!
- Loan Amounts: $1,000 to $50,000
- Credit Score: 620+
- APR: See Upgrade Detailed Review for up to date APR information
- Terms: 36 to 60 months
- Fees: 1% to 6% Origination Fee and will vary by loan term
- Debt to income of 50%
- Funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications
Upgrade is introducing an unsecured credit line up to $50,000.
- Loan Amounts: $5000 to $35,000
- Credit Score: 660+
- APR: See Payoff Detailed Review for up to date APR information
- Terms: 2 to 5 years
- Fees: No fees for origination, prepayment, or loan disbursement
- Added Benefits of Payoff
- Payoff is a team of financial services professionals, research and clinical psychologists, data scientists, neuroscientists, Member Advocates, and technology experts working together to better understand and accelerate people’s journey toward financial wellness.
- Soft Pull only to start
- Specialize in consolidating credit card debt
If you are unable to keep up your payments with your loan providers and are struggling with the pressure, debt settlement may be an option. Debt settlement is also referred to as debt negotiation, negotiated debt settlement or even referred to as debt consolidation.
Debt settlement companies will ask you to deposit money into a cash account every month. Once you have reached the level to pay off one or more of your debts, they will attempt to negotiate a buyout with each one of your lenders. This is a good choice if you have more debt than you can manage over a 2-3 year time period or if you are experiencing financial difficulties that have put your behind on your payments or is about too.
Drowning In Debt? Consolidate Your Debts And Save Thousands
Why would a lender consider debt settlement instead of just charging you more late fees and penalties? Lenders want to get paid and if you are close to bankruptcy, they would rather get some of their money back instead of nothing at all. They are usually willing to settle for a lower amount given that there is already an extreme hardship for the debt holder.
Is Debt Settlement right for you?
Debt settlement is not for everyone. You would only look at this if you had legitimate financial hardship which has made you fall behind with all of your creditors. Debt settlement providers are experts in this field and would not work with anyone that was trying to deceive or defraud lenders.
This process can take a long time and can affect your credit score and may even cause tax issues. You would look at this option if you are out of options for debt consolidation. Check this connection for the best option for debt settlement.
Debt Consolidation is Not for Everyone
Debt consolidation can also be a poor choice if you are not ready for financially responsible. Undisciplined spending choices after debt consolidation can drive you into a worse financial position.
After receiving the debt consolidation loan, the existing credit cards will be free and clear of debt. All of the old debt is under one payment that is now paying off your debt instead of only covering the minimum credit card payments. If you start adding debt to your credit cards, it could be very difficult for you to get out of debt again. Your ability to pay off even more debt could be hard with this new monthly debt consolidation loan payment as you may not qualify for additional financing. If you are considering debt consolidation, make sure you are managing your spending habits as well.
Is Your Credit Score Stopping You From Getting a Loan?
If you are not in the position to qualify for a debt consolidation loan today because of your credit score, take the time to rebuild your credit before you apply again. Without a good credit score, debt consolidation does not help.
Credit Card Options
Another debt consolidation option is applying for a 0% credit card to clear off high-interest debt. This can be a short-term solution until the interest charges on the credit card resume. The advantage of taking out a debt consolidation loan is that the principal is eventually paid off. If you cannot qualify for the full amount of your current debt, a 0% credit card can also be part of your solution. While you're paying 0% interest, try making larger payments when it all goes against the principal.
21 Month Interest-Free Balance Transfer 0% Credit Card
Credit cards are available for good and excellent credit. These credit card option provides an excellent way to reduce interest expense and pay off the debt. If you still have debt remaining after 21 months, apply for a debt consolidation personal loan.
18 Month Interest-Free Balance Transfer 0% Credit Card
If you have fair credit and considering debt consolidation, a 0% balance transfer credit card is an excellent way to clear high-interest expense instead of taking out a personal loan and paying interest now. You will also receive 0% interest for 6 months on purchases.
Secured Debt Consolidation Loan Options
Taking out an unsecured debt consolidation loan is not your only method to consolidate your debt. Unsecured debt consolidation loans are considered a higher risk for lenders than a secured loan and come with a higher rate of interest than a secured loan. If you're in a position to use the equity from your home or other assets like your vehicle, you may receive a better interest rate with a secured loan. Here are a couple of service providers if you are using your home or auto for security.
Home Equity Line Of Credit
A Home Equity Line Of Credit is referred to as a HELOC by most lenders. It is a credit line secured by your property. The lender places a lien against your property and when you sell the credit line is paid off.
Home Equity Loans
A home equity loan is simply a loan with a set term like a personal loan or debt consolidation loan. The home equity loan is secured by your property or assets and we consider this the best option for debt consolidation if you can qualify. Why? It should be your lowest interest offer and it will have a shorter term with an end date. If you use a credit line, it never ends and adding to your mortgage may spread your debt over 20-30 years. This will cost you 3-5 times in interest by the end of the mortgage.
Auto Loan Refinancing
When your mortgage comes up for renewal or if the penalities to refinance are not too expenvie, cash out refinancng can be a great way to clean up debt. If you've had your property for a while and built some equity, this will provide the lowest interest costs for the short term. Yuo apply for a new mortgage, pay off othe old mortgage and add cash for debt consolidation to the new mortgage. Why go through this process? If you take out a home equity loan, you will have fees and a second monthly payment. If you take out a line of credit, you are paying interest only over the next 10-15 years and this is also a second payment. Some mortgage providers charge a high prepayment fee, check with your lender.
If the new debt adds years to your mortgage, do a comparison between a debt consolidation home equity loan and the mortgage interest. If you can manage a home equity loan instead of adding to your mortgage payment, we recommend that you do that instead of extending the time for this debt.
Mortgage Refinancing Options
Depending on your age, a mortgage reversal may work if you are close to retirement and you need to clear off high-interest debt. As we get closer to retirement age and still carrying a large amount of debt this may be an option for you.
Small Business Debt Consolidation Loan
Small business loans can be a great option if you have a credit score from 500+ and have been in business for one year.
Business Loan Providers
National Funding Business Loans
Lending Club Business Loans
LendingClub is a peer to peer lender offering easy, fast and affordable business loans without restrictive bank requirements. Lending Club is one of the largest online providers with over $20 billion in funds issued.
OnDeck Business Loans
Ondeck offers business loans with a credit score starting at 500+
Shop for a low-interest Loan
Shop around to see who is offering the lowest interest rate with flexible repayment options. The main savings with debt consolidation is the interest expense. Always check with your bank to see if they will help you with a loan, if not there are lots of online lenders that will try to help you.
Pay off High-Interest Loans
Once every credit card is paid off, consider canceling the credit cards with higher monthly or annual fees.
Going credit card-less may not be realistic, so if you plan to keep a credit card, keep your oldest credit card, it will help with your credit history and improve your credit score.
Dedicate Part of Your Budget to Early Loan Repayment
Sign up pre-authorized payments and align your payments with your paycheques. With lenders like SoFi, you will receive a lower interest rate by setting up pre-authorized payments.
Set up your loan payments to twice a month and get a few extra payments every year. It will save on interest and pay the debt consolidation loan off even faster.
What Interest Rate Will be Offered?
The interest rate offered by the lender will depend on your credit score and credit history at the time you apply.
Once the loan is approved and locked in, the interest rate will remain constant for the life of the loan.
Will Applying Harm My Credit Score?
Most lenders complete a soft pull on your credit score. Lenders would usually complete a hard pull if they have approved the loan and informed that they need the hard pull. Make sure to always ask.
What is an Annualized Percentage Rate (APR)
Debt consolidation loan providers charge you interest and fees for their services and these fees are blended into the Annualized Percentage Rate (APR). Lenders break down the fees that are being charged on the loan. The fees could include closing, insurance costs, and origination fees. Read the fine print to find the lender fees. Some lenders waive these fees. The origination fees range from 0 to 6% depending on which lender you're looking at. Closing and insurance costs can be also be added to the loan amount.
A secured debt consolidation loan should always cost you less in interest payments, but you could lose your asset if you default. Unsecured debt consolidation loans have a higher interest rate, but you will not lose your property if you are unable to pay. You will severely damage your credit score if you default on an unsecured loan.
Take advantage of 0% credit cards as a quick way to stop the interest payments. You may want to do this step first to stop the bleeding now.
Take a close look at your personal spending habits and if you are out of control contact a credit counselor.
Debt consolidation is an excellent way to get rid of your credit card interest and start paying down all of your debt instead of only making the minimum monthly payments.
- USA.gov site: Dealing with Debt - USA.gov site: Dealing with Debt
- Debt consolidation definition CFPB acquired May 10, 2018 - "Consolidation means that your various debts"
- Length of credit history is 15% of your credit score - "Length of credit history (15%)" of your credit score: myFico acquired may 5, 2018
- The National Foundation for Credit Counselling - The National Foundation for Credit Counselling
- Payday Loan Consumer Information” CFA. Acquired May 5, 2018 - Alabama “Payday Loan Consumer Information