You’re in over your head with high-interest credit card debt and are looking for relief. Consolidation may be a viable option, but where is the best place to get a debt consolidation loan?
Let’s take a look.
What Is Debt Consolidation?
This financial strategy combines multiple debts — usually credit cards – into a single monthly payment of the same amount each time. This could be a good move for you if you can get an interest rate that’s lower than the aggregate amount you’re paying on current debt.
Debt consolidation can be a sound approach If you’re juggling multiple bills and want to reorganize them with a better interest rate, lower payments, and a single due dates each month. However, consolidation does not fix poor spending habits that may have gotten you into your situation in the first place, so you need to have a plan to stay on point with your payments or you could create a new problem to resolve.
How Does Debt Consolidation Work?
A personal debt consolidation loan lets you pay off debts yourself, or you can use a lender that sends funds directly to the credit card companies.A strong credit score affords you a better shot at qualifying for a personal loan and getting a lower interest rate. So, assess your credit score to see where you stand.The next step is to compare estimated rates. Determining your credit score will give you a better picture of the interest rate and payment amounts you might get on a personal loan.
Where Can I Get A Consolidation Loan?
When it comes to getting a personal loan for debt consolidation, possible sources are credit unions, banks, and online lenders.
Unlike banks, credit unions are not-for-profit. Credit unions tend to offer lower loan rates and fees because they’re more geared toward customers – their members. This means you might be able to get a personal loan from a credit union with an interest rate that’s markedly lower than what you’re paying on your credit cards.
In fact, you may be able to find debt consolidation loan with interest rates as low as five percent, and capped at 18 percent. Rates for such loans from other sources can be as high as 35 percent.
You may also see repayment periods for as long as 60 months, and origination fees of around five percent of the loan’s value. These fees may be waived or negotiable, depending on the credit union.
Credit unions may also be your best bet for a relatively small consolidation loan — $2,500 or less.Still, large banks generally provide competitive rates for borrowers with good credit. If you have a good relationship with your bank, and perhaps have been a long-time customer, you may be able to get a rate discount and larger loan amount.
Meanwhile, most online lenders allow you to pre-qualify for debt consolidation without it affecting your credit score, since they only require soft pulls on your credit. While pre-qualifying doesn’t guarantee application acceptance, it does offer a preview of the loan amount, rate, and terms you might get.
Read The Fine Print
Read the terms of loan offers closely, watching for prepayment penalties, automatic withdrawals and annual percentage rate surprises. The total cost of your loan, including origination fees, should be clearly cited and figured into the APR.
Some consumer-friendly features include direct payments to creditors and perks such as the ability to skip a payment due to hardship. Also, many lenders report on-time payments to credit agencies.
So, where is the best place to get a debt consolidation loan? It depends on your situation. But now that you have all the info you need you can make your best choicewith confidence.