It seems like prices today are higher than ever. Gasoline, rent/mortgage, insurance, and even groceries have reached an all-time high. Many people have resorted to using credit cards to help pay their bills. While it often seems like there is no way out of debt, there are some options that can help reduce debt and help raise your credit score—two important things to people who want an answer to their financial issues. The answer for many people is a debt consolidation loan.
What is Debt Consolidation?
Those who consider loan consolidation will be taking their credit card debt and rolling it over into one larger loan at a lower interest rate. Debts that are commonly consolidated include auto loans, student loan debt, personal loans, and credit card balances. A debt consolidation loan enables the individual to pay off their credit card debt with one payment, instead of several smaller payments, according to Forbes.com.
For many, interest rates can be very high, especially those that are “credit challenged.” This usually means that those who have racked up a lot of credit card debt are paying mostly interest on their credit cards, with very little going to the principal amount. In many cases, the payments are so high that they look for other credit cards and ridiculous interest rates, some that hover close to 29%.
A loan consolidation can be beneficial for several reasons, there will be no need to remember numerous monthly payments, as everything is rolled into one monthly payment. Most companies that offer debt consolidation loans will walk their customers through the process, so they understand how it works and what their monthly payment will be.
When to Consider a Debt Consolidation Loan?
There are times when debt consolidation is the best. How do you know if it is a good idea for your financial future? Here is some information from Debt.com, which should help you determine if it is the best financial strategy for your situation.
Situations when debt consolidation is beneficial:
- If you have a large amount of debt, a debt consolidation loan can help borrowers get out of debt quickly. By securing a debt consolidation loan with a reduced interest rate, you will be able to save money on interest. The best scenario is to take the amount you’re saving on interest and pay down the principal.
- You learn to avoid financial loans in the future. Before securing a loan, look at your spending habits. If you are spending too much money and making bad decisions regarding your money, you may find yourself in debt again. You need to make a plan and stick to it…this means learning new more responsible spending habits.
- If you want to simplify your payments, debt consolidation can make your life much easier. Since a debt consolidation takes all your bills and rolls them into one, there is only one monthly bill to pay. Simplifying payments means there is less of a chance of missing a payment deadline and incurring late fees.
How to Find a Good Debt Consolidation Lender?
There are many options to consider when looking for a debt consolidation loan. Banks, credit unions, and online lenders all offer these types of loans. You may find that if you have an account with a particular bank, they may offer you better options than someone who is not a customer.
When looking for a loan, you should look at options that offer free quotes, this will not result in a hard credit inquiry on your credit report. When looking into all the different options, consider fees and interest and any other expenses you may incur when choosing a loan, suggests Debt.com.
Many people are choosing online lending solutions, some of these include Symple Lending, Credible, Lending Club, and Upstart. Houston Fraley the Founder of Symple Lending created his company specifically for those who want to get out of debt and realize their financial goals. As always, do your research before you decide on any loan to make sure you can afford the payments and fees.
