The first step toward financial freedom is setting goals. Whether to get out of debt or save for retirement, financial goals provide motivation and direction. A debt consolidation loan might help you achieve your goals. But it’s important to understand how it works before you apply.
What is a Debt Consolidation Loan?
A debt consolidation loan is a personal loan used to pay off and replace existing credit cards, auto loans, or other unsecured debt with a single monthly payment. Typically, debt consolidation loans come with lower interest rates than those of your existing credit cards and can help you break the cycle of high-interest debt. A hard inquiry will be made into your credit reports by prospective lenders when you apply for a debt consolidation loan. This may cause your credit scores to drop temporarily. When you choose a lender for your debt consolidation, look for one that offers the loan amount and repayment term that match your needs. Also, consider other ways to pay down your debt, including asking creditors if they can lower your rates or waive prepayment penalties.
How Does a Debt Consolidation Loan Work?
A debt consolidation loan rolls your qualifying credit card, student or personal loans into one monthly payment with a fixed interest rate. This can simplify your repayments and reduce your fees and cumulative interest paid over time. A debt consolidation loan can be applied through online lenders like Symple Lending. The lenders will review your credit reports and scores to evaluate your eligibility. Another option is a debt management plan with a nonprofit credit counseling agency, which helps you create and stick to a repayment plan.
How Can I Get a Debt Consolidation Loan?
Applying for a debt consolidation loan follows the same process as applying for any personal loan. Lenders will review your credit report and income and may require additional documentation to determine eligibility. If your loan application is denied, you are entitled to an adverse action letter that provides the reason and details your options. Knowledgeable associate at companies similar to Symple Lending can discuss a computation to pay off your debt more quickly by lowering your monthly payment and total interest. However, examining your budget and spending habits is important before you borrow. Merging balances into a single monthly payment will only work if you spend more than you earn. Compare lenders with loan amounts, repayment terms and interest rates to find the best offer for your situation. Also, shop for lenders that provide consumer-friendly features like direct payments to creditors and hardship programs that temporarily reduce or suspend your monthly payments if you’re struggling to keep up with your debts.
Are Debt Consolidation Loans Right for Me?
By combining several credit card balances into a single, consolidated debt payment, a debt consolidation loan can streamline your finances and reduce your costs. However, you must qualify for a low enough interest rate to offset the higher monthly loan payments and make it worthwhile. Compare offers from different lenders and select a loan with an annual percentage rate (APR) that fits your budget. Consider other factors, such as repayment terms and consumer-friendly features like direct payment to creditors.