Debt Consolidation is a way to manage debt that involves combining one or more debts you currently have in a single form with a loan usually with a more favorable term, usually primarily used for credit cards, medical bills, and payday loans.
The main goal in consolidating your debt is to obtain a lower Annual Percentage Rate (APR) than the current rate you pay, this will usually result in a lower interest expense, lower monthly payment, and a faster way to pay off your debt.
When choosing the right debt consolidation loan for you there are a few factors you should consider such as the APR, fees, terms, and funding time of the debt consolidation loan.
Increase your credit score: The main factor with loan approvals will be your credit score and repayment history. Even though a lower credit score doesn’t mean you will be denied, an individual with higher credit scores anywhere from 720-850 will have more options and better rates.
If your credit score is below low 690 it’s to your advantage to improve your credit score before applying which will help you get the best interest rates and increase the number of lenders that can approve you.
Apply Jointly or get a co-signer: In most cases getting a co-buyer or co-signer to your loan application will usually help you qualify easier for individuals having a hard time getting approved due to other applicants’ income and credit score will be considered.
Both borrowers can use the money when applying for a joint loan application, but in the co-signer case, the main applicant has access to the funds. But in both cases, co-buyers and co-signers are responsible to pay off the loan if you fail to.
Advice for securing a loan: Prioritize planning ahead by setting aside funds or creating a repayment plan, and create a budget by putting aside a percentage of your income towards paying down the loan.
Additionally, limit spending and incurring further debt to improve loan options and lower payments, also be sure not to close any of your credit cards which can hurt your credit score.
Note that debt consolidation loans often have longer terms, so be ready for extended repayment to eliminate debt.
Most debt consolidation loans can range from 2-7 years extending your debt into a more manageable payment and giving you enough time to pay back your debt.
Something to also consider when applying for a personal loan is that it works in two ways for your credit score.
At first, it will hurt your credit score a little due to the lender doing a credit pull, but as long as you make the payment on time in the long run the loan will benefit your credit score and credit history.
Another way getting a debt consolidation loan will help your credit score is you will be able to pay off the overdue credit card bills which will eventually increase your credit score.
Debt consolidation can help you not only track your payment easier but lower the interest rate your paying on your credit cards which can help you pay off your debt faster. But before getting a loan you should weigh your options and see what's the best solution for your situation.
Consolidating your debt will affect your credit score, usually when applying for a loan lenders will do a credit pull that can cause a small drop in your credit score. But over time some borrowers see an improvement in their credit score by consolidating debt. Paying off your credit cards will lower your credit utilization ratio which increases your credit score.
A good credit score is not required to get a debt consolidation loan, but applicants that have higher credit scores will have more options and better Annual percentage rates. There are many loan options to consider compare all of them and see which one might work for your situation.
There are many options that can really depend on your financial situation. The few main ways to consolidate may be personal loans, balance transfer credit cards, home equity loans, car equity loans, 401k loans, savings, or peer-to-peer lending. Research all of your options and choose the best one for you.
No matter what loan your applying for there is always a cost associated with them. The best way to determine the cost of a debt consolidation loan is to compare Annual Percentage Rates (APR) which are usually presented on the lender's websites.
The simple answer to the differences between a secure loan vs an unsecured loan would be that a secure loan usually has assets tied to it so as homes, cars, etc. But secure loans doesn't require collateral to get approved usually amounts will depend on your income and your credit score.
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The Annual Percentage Rate (APR) is the true rate at which your online loan accrues and is determined by several factors such as the amount borrowed, the interest rate, the term of the loan, repayment amounts, and payment schedules. Only the lender who approves your loan can provide you with the loan terms. According to Canadian and American law, payday lenders must disclose the APR before entering into any loan agreement. We are not a payday lender, loan broker, or agent and do not have access to your loan details. Private Loan Shop only facilitates communication between eligible lenders and borrowers.
In case you do not repay your loan on or before the due date, your loan will be considered “delinquent” and subject to a fee imposed by the lender. Additionally, your bank may charge you an NSF (non-sufficient funds) fee for the failed item. The interest rate will continue to accumulate on the unpaid balance. If you fail to repay your loan, you will not be permitted to borrow from the lender again until the balance is paid in full. We only employ reputable collection agencies that comply with lawful collections practices, and late payments may negatively impact your credit rating.
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