The reason why you may consolidate debt with a personal loan is to eliminate high interest payments throughout all your different debts. There are different ways of doing so, one being through a personal loan. You can take out a personal loan at a fixed rate, often without the need for collateral. However, consolidating debt with a personal loan isn’t for everyone. The ideal candidate has a stable source of income, is able to qualify for a low interest rate, can pay off their debt in a short amount of time, and is looking to combine multiple credit lines into one account. Loans are available from a variety of sources such as banks, credit unions, online lenders, and even peer-to-peer lending programs.
What are Personal Loans
Personal loans are low, fixed-interest rate loans that can be secured or unsecured depending on the borrower’s credit score, income, and work history. These loans are secured through collateral such as a house or car, or through a borrower’s savings account. Borrowers with good credit typically qualify for an unsecured loan, which doesn’t require collateral. Personal loans are also referred to as ‘signature loans’ and borrowers can obtain anywhere from $1,000 to $35,000 depending on their credit score and income. Interest rates start at 5.99% APR and vary depending on the loan provider.
Using a personal loan to consolidate debt leads to savings over time because it reduces the amount of money a person is required to pay in interest. The fixed rate also helps to avoid fluctuations in the amount that’w owed. However, it’s important to consider a few factors including the total loan cost, the interest rate of the loan, personal spending habits, and the time period it will take to pay down the debt. In order for a borrower to consolidate debt with a personal loan, he or she needs to have a plan to pay off the principal amounts of their credit cards while also avoiding adding to their debt through common pitfalls such as high interest rate loans and lengthy repayment schedules that lead to paying more money in the long run. Manageable monthly payments also contribute to the borrower’s ability to keep their debt at a minimum.
If you’re considering using a personal loan to consolidate debt, it’s crucial that you obtain a low interest rate. Taking out a loan with a high interest rate eliminates the benefit of savings from reducing interest payments and continues the cycle of high-interest debt. In order to maximize these savings, consider the total cost of the loan over time, not just the monthly payments or the interest rate of the loan. The longer the repayment period of the loan is, the more money it’s going to take to pay it off because of the interest that adds up over time. Finally, in order to consolidate debt with a personal loan, the borrower must actively work to change their spending habits. You must be willing and able to change the habits that caused the high amount of debt in the first place. This means having a steady income and exercising restraint in spending during and after the debt consolidation. Ultimately, debt consolidation shifts debt from one kind of liability to another, so in order to truly experience the benefits of consolidation the borrower has to avoid adding to their debt.
In order to achieve the best possible interest rate, you’ll need to compare quotes from various lenders. Some of the best debt consolidation lenders include Marcus by Goldman Sachs at rates of 6.99% – 24.99% APR, LightStream, who offers rates of 3.24% – 17.49% APR, and Discover Personal Loans with rates between 6.99% – 24.99% APR. Other providers include Freedom Plus (4.99% – 29.99% APR), Upgrade Inc. (5.66% – 35.97% APR), Best Egg (5.99% – 29.99%), Lending Club (5.99% – 35.89% APR), and Avant (9.95% – 35.99%).
Steps to Consolidate Debt with a Personal Loan
If you’re ready to consolidate debt with a personal loan, these are the steps you’ll need to take.
First, you’ll need to obtain a copy of your credit report. You can get this through a service such as Smart Credit. Scan over your credit report to find any red flags that may cause you to be turned down for a loan, and consider your credit score because this is one of the factors the loan provider will use to set your interest rate.
Next, you’ll need to decide how much money you need to borrow. You can do this by determining the monthly payments for your debt and the interest or annual percentage rates (APR) you’re required to pay.
At this stage, you’ll be ready to begin looking for lenders. Possible sources for personal loans include banks such as Wells Fargo, credit unions, and peer-to-peer lending platforms such as Prosper. Credit unions typically have lower requirements than banks for taking out a personal loan. As you look for a lender, consider the total cost of the loan, the repayment period, the interest rate, and the requirements you’ll have to fit to qualify for the loan, which can vary depending on the lender.
The next step is one of the most important because it will help you understand how you can benefit from consolidating debt depending on your personal situation. No matter which lender you choose, it’s vital that you’re able to comfortably afford the monthly payments. Once you’ve been approved for a personal loan, focus on paying off your debt and practicing good spending habits. After the credit cards are paid off, avoid closing the accounts unless you absolutely must. Credit history is partially established based on the length of the accounts you’ve opened, so having accounts with a long history benefits your credit score. Consolidating debt is an easy process that can help you to manage your finances and save money in the long run.
You can can obtain approval for a personal loan in as little as a day, so it’s quick and easy to start taking control of your debt.