Are you stuck paying the minimum payment on your credit card debts month after month, with no end in sight? If you’re seeking a way out of the credit card debt trap, you may want to consider a debt consolidation loan.
Debt consolidation loans can help you pay off your credit card debts in full, often at a far lower interest rate. This will help you save money and get out of debt faster.
If you’re excited at the thought of getting out of debt and saving money every month, read on to learn more about debt consolidation loans and how they can help you!
How Does a Debt Consolidation Loan Work?
If you’re struggling to pay off multiple debts, you may be considering a debt consolidation loan. This type of loan can help you get out of debt by combining all of your debts into one monthly payment. But how does a debt consolidation loan work?
When you take out a debt consolidation loan, the funds are used to pay off all of your other debts. You’ll then just have one monthly payment to make to the lender of the consolidation loan.
Normally, the interest rate on a consolidation loan is much lower than the interest rates on credit card debts, so you’ll have a much easier time becoming debt-free fast.
With that said, to qualify for a debt consolidation loan with the best interest rates, you’ll need to have a good credit score. If you don’t, you may still qualify for a loan with a higher interest rate. The key is making sure the numbers work out in the long run when factoring in the interest savings.
Can Debt Consolidation Loans Hurt Your Credit Score?
Maintaining a solid history of making your monthly payments is a key factor in your credit history. However, so are high credit card balances. In fact, the amount of your available balance that’s being used on your credit cards which is your credit utilization rate—makes up 35% of your credit score.
When you combine your credit card debt into a single debt consolidation loan, your credit utilization rate on your revolving accounts drops significantly on your credit report. This could result in a huge boost to your credit score.
Can’t You Just Get a Personal Loan Instead?
Personal loans work a little differently than traditional debt consolidation loans do. With a debt consolidation loan, part of the loan approval process includes you paying your high-interest debts down so you’re able to easily make your minimum payments.
On the other hand, personal loan lenders usually just base everything on your income and credit score. Usually, this difference means personal loan rates are higher than debt consolidation loans, making them a less attractive alternative to a debt consolidation loan than other options such as home equity loans.
If you have excellent credit, you might still get a competitive interest rate if you’re a member of a credit union that offers personal loans. Whichever option you’re thinking about, be sure the repayment terms make sense for your plans to become debt free.
Can You Consolidate Debt for Auto Loans?
The good news is that having multiple auto loans, you might be able to consolidate these debt payments with a specialized auto consolidation loan. However, keep in mind that you won’t be able to consolidate other types of debt into an auto-specific consolidation loan.
So if you’re considering consolidating debt to lower your credit card bills as well, you’ll need to choose unsecured personal loans instead.
Finding the Best Debt Consolidation Loans
When you’re trying to achieve a more affordable monthly payment for your unsecured debts, it’s important to find a debt consolidation loan with the best loan payments. Much of this will hinge on your credit score, making some options for consolidation loans only available to a small percentage of people.
Let’s run down the list of some of the best tools to consolidate debt, from high credit scores to low.
Credit Card Balance Transfer
If your credit score is still high and you’re making on-time payments, you might try to balance transfer credit cards that have the highest rates to ones with low intro rates.
Once the transfer is complete, your monthly debt payments will be lower, enabling you to shovel more funds into paying the debts down.
Using a Home Equity Loan for Debt Consolidation
When your credit score is still decent but maybe not perfect or you’re not on good terms with your credit card companies, a home equity loan might be a viable option. Approvals for these loans are largely driven by your debt-to-income ratio.
Sometimes, the lender will allow you to qualify using the monthly payments after you’ve consolidated your debts. Be sure to ask your loan officer what their underwriting process looks like when it comes to this.
Finally, remember that some banks will charge origination fees for home equity loans, which could be thousands of dollars.
Unsecured Debt Consolidation Loans
Loan companies that focus on debt consolidation work primarily to help people get out of debt. Although these lenders are providing more debt, the aim is to restructure your existing debts to allow you to pay interest on a simple fixed monthly payment that you can plan for.
Aside from being easier to budget, these loans simplify your debt repayment so that the balance goes down significantly each month. When you’ve been struggling to barely keep your credit card balances below the limit on multiple bills, unsecured debt consolidation loans can make all the difference.
Considering Consolidating Your Debts? Call Alleviate Financial Solutions!
The debt consolidation experts at Alleviate Financial are here to help you uncover what the best options are for your financial future, helping you with the best debt settlement program.
Whether you need a debt consolidation loan, debt settlement, or credit counseling—our debt relief experts will help step you through the process of finally becoming debt-free.
Reach out to our debt consolidation loan experts to start making your plan to become debt-free. Contact us at 800-308-2935 at Alleviate Financial Solutions today!