When you don’t have the funding or regular income to manage a large amount of debt from an outsized accumulation of credit cards, personal loans, lines of credit, etc., you may qualify for a consolidation loan.
This type of loan aims to combine or consolidate all your smaller debts into one loan at a lower interest rate, instead of various rates that are usually high and difficult to pay off. However, it’s not the perfect solution for everyone. You have to have a certain set of circumstances in place to make a deb consolidation loan an affordable solution.
How Debt Consolidation Can be an Affordable Solution
Regardless of your situation, you can usually find someone willing to write you a consolidation loan, even with less than pristine credit. With that said, it’s important to consider the cost of fees, interest rates, and whether you’re a good candidate for consolidation.
Further, if you have debt you cannot consolidate and paying both would be too much to handle, you’ll likely be better off looking at another solution, such as debt settlement.
On the other hand, if your income will handle it, consolidating everything into an affordable debt consolidation loan could make your finances much easier to manage. There are different types of consolidation loans, which is important to become familiar with when considering this as an option.
Typically, debt consolidation loans offer low-interest rates, and the loan amount is flexible with longer terms, so you don’t have to pay high amounts each month. The principle of these loans is to reduce the monthly payments and interest rates, by combining all your debt into one obligation that requires a lower monthly payment and reduced interest charges.
Simply put, consolidation can enable you to pay off multiple debts with a single monthly loan payment.
Are There Hidden Fees or Other Expenses When You Consolidate?
When you meet with your bank representative or loan consolidation specialist, you’ll find there may be extra rate fees or that loan interest rates may vary from one financial institution to another.
For this reason, prepare any questions you have beforehand to be prepared to inquire and make an informed decision. Some companies are upfront about the fee structure and interest rates, whereas others are less clear. Always ask before you proceed with applying for a debt consolidation loan, as this can cost you more in the long run if you’re not aware of it.
Typically, interest rates on debt consolidation loans can vary considerably from 6% to 36%. The interest rate depends on your credit score; if you have an excellent credit rating (between 720 to 850 FICO), you’ll qualify for one of the lowest interest rates. Good credit scores are between 690 and 719 FICO and typically allow for a moderate to low interest rate.
The Benefits of Affordable Debt Consolidation
IF you have a good or excellent credit score of at least 700 or higher, you’ll qualify for the lowest interest rates. You can discuss prequalifying first and discuss the purpose of the consolidation loan and whether it’s a good fit for your lifestyle and circumstances.
It’s best to keep track of your credit score and make any improvements in your financial situation where you can, if possible, before considering consolidation. Debt consolidation is definitely one of the most beneficial solutions for reducing and eliminating long-term debt and improving life quality.
Ultimately, what makes a debt consolidation loan affordable is your credit history, how you handle your debts, the type of loan you go for and the nature of the company with which you choose to work.