It can be hard to keep up with all of your bills. Moreover, credit and income situations change. This can mean that you’re spending more of your hard-earned money that you need to in order to cover your debts.
Thankfully, there’s a powerful tool that can help you simplify your bills and lower the amount you pay every month. It’s called a debt consolidation loan. This article will help you understand everything you need to know about consolidation loans. We’ll cover the basics of consolidation loans, how to find the best consolidation loan companies, how to get the best debt consolidation loan rates, and finally we’ll look at student loan debt consolidation.
When you’re done with this article you’ll understand all the different aspects of debt consolidation loans. Use this information to create a better financial future for yourself and those you care about.
Understanding Debt Consolidation Loans
On its face, a debt consolidation loan is simple. It’s one big loan that you use to pay off all of your other debts. This has several advantages for consumers.
First – It allows you to simply your bills. Instead of keeping track of multiple due dates you make one easy payment. As a result, it’s easier to plan your finances. It’s also easier to keep track of your bills. That means no more juggling different bills and hoping things work out.
Second – a debt consolidation loan can lower your monthly payments. There are two ways it can do this. A debt consolidation loan can extend the term of your debt. That means you’ll pay over a greater period of time, lowering the amount you pay each month.
The other way that debt consolidation loans can lower your monthly payments is by saving you money on interest rates. Lots of sources of debt have very high interest rates – credit cards and credit card companies are a great example of this. Sometimes you pay as much as 35% on your balance.
That means most of your payment isn’t going towards your actual debt. Instead, it’s paying off the interest you’ve accumulated on that debt. When you get a debt consolidation loan with a lower interest rate you can pay off your balance faster.
Finding the Best Debt Consolidation Loan Companies
There are all kinds of debt consolidation loan companies. You can get a consolidation loan through your local bank or credit union. There are also specialized lenders that help people in specific situations. That means there’s a lot to consider when you’re deciding on a debt consolidation loan company.
First, you need to consider what’s most important for you. Are you looking for the best interest rates for debt consolidation loans? Or do you want more generous terms that lower your payments by increasing the amount of time you have to pay the loan back?
Moreover, you need to consider the speed of disbursement and application process. For example, traditional lenders, like brick-and-mortar banks, usually take a bit longer to process applications. They also don’t disburse your loan as quickly.
However, you’ll get actual face time with people at a traditional lender. That can help put your mind at ease. It can also allow you to make a more convincing case for why you should get approved for the loan.
Online debt consolidation loan providers usually have incredibly fast approval times. They can use modern technology to quickly process your loan application. Also, these lenders tend to take care of your loan quickly. That means your creditors and lenders will be paid off so you don’t have to worry about next month’s bill.
Read Online Reviews
Online debt consolidation loan reviews are a great way to find out how companies handle themselves with real customers. After all, financial products are so complex that there’s no way a company’s advertising can possibly include all the details about the product.
Also, looking to online reviews will give you lots of helpful information about the company’s customer service process. Any company can present a friendly face in ads and on their website. What matters is how they actually handle their customers. If you find a company that looks good but has lots of negative reviews online, then you should probably look somewhere else.
Consider the Approval Process
Another thing to keep in mind is how different companies go about approving loans. Some lenders focus almost exclusively on your verifiable income and credit score. Others will take a broader perspective when determining who qualifies for a loan.
That means you should carefully evaluate each lender’s requirements to find the best debt consolidation loan company for you. You want to find a company that’s likely to approve you but that also offers the best possible rates for your loan.
And speaking of interest rates and debt consolidation loans….
Getting the Best Debt Consolidation Loan Rates
One of the biggest motivations for people to seek a debt consolidation loan is to lower their interest rates. This allows more of your payment to go toward your actual debt. As a result, your debt gets paid off more quickly.
This doesn’t just save you money month to month. It also saves you a lot of money over the course of your repayment. Therefore, it’s not surprising that people have such a strong incentive to get the best debt consolidation loan interest rates possible.
Check the APR
When you’re shopping for a debt consolidation loan there are a few things you should look for to make sure you’re actually getting the best rates. First, you should compare the APR of the different loans. APR is a helpful number. It shows how much you’ll actually be paying for your loan.
Looking at interest rates can be informative. However, the APR on a loan also takes other things into account. This includes the way the interest is calculated (simple vs compound interest), and any other fees or charges that are included in the loan.
Everyone’s heard talk about hidden fees. There’s no industry more prone to these types of fees than the financial products industry. Some companies charge an origination fee. That’s a fee for giving you the loan that they approved! This fee can be up to 3% of the total loan. Moreover, it’s usually taken out of the initial loan disbursement. That can leave you with lingering bills you thought you paid off.
Comparing the APR of different loans gives you a true apples-to-apples measurement of one loan against another. Therefore, you’re getting more information than just the debt consolidation loan interest rates. You can use this information to make the best financial decision for your situation.
Pre-approval is an incredibly helpful tool. It lets you get an idea of how likely you are to be approved for a debt consolidation loan. Also, it gives you a much narrower range of where your loan’s interest rates will be set. Best of all, it does all of this without using a hard credit check. That means you won’t hurt your score if you decide that now isn’t the right time for a consolidation loan.
You can also use the pre-approval process to get a better idea of the terms you’ll be offered. The terms you’re offered will affect your monthly payment. Some companies may be willing to approve you for a three-year loan, but not a five-year loan. If that’s the case, then your monthly payments might be higher than you’re expecting.
Monitor Your Credit
Regardless of what kind of lender you decide to use, your credit score will play a huge role in determining the interest rates you get on a debt consolidation loan. Make sure to monitor your credit frequently. Many services offer free monthly credit monitoring software.
You can use this software to make sure all of your information is accurate. After all, identity theft is a big problem this day in age. Someone could steal your personal information and use it to open new accounts without your knowledge. Checking your credit report can help spot these issues before they become a serious problem.
A Special Case: Best Student Loan Debt Consolidation
Finally, we’ll talk about student loan debt consolidation. This is a special case when it comes to debt consolidation. Student loan debt is the fastest growing type of debt in the country. It also is the second largest source of debt. Only mortgages outpace student debt in America today.
There’s another issue as well. Most consolidation loan companies won’t give a general debt consolidation loan for student loan debt. There are lots of different rules and regulations designed to help and protect student borrowers and lenders. That means you’ll need to look for a lender that specializes in consolidating student loan debt.
Thankfully, there are lots of options for student loan debt consolidation. That means you’ll want to do some research before you choose a consolidation option.
Federal Student Loan Debt Consolidation
The federal government provides student loan debt consolidation services. However, you can only use these services for your loans that were issued by the federal government. That means you’ll have to look elsewhere if you borrowed money from a private lender like a bank.
Federal student consolidation operates through the same program as most federal student loans. It can lower the average interest rate on your loans. It can also simplify your payment schedule. If you have loans with the federal government, then a federal consolidation loan is usually the best option.
There are some traditional lenders that offer student loan consolidation. These lenders can consolidate private loans as well as federal loans. However, before you consolidate your federal loans with a private lender, there are a few things you should keep in mind.
First – there are special programs and protections for student borrowers. These include things like income-based repayment plans, interest reduction programs, and loan forgiveness programs. If you consolidate your loans with a private lender then you’ll no longer be eligible for these programs.
Second – make sure you closely look at the interest rates that traditional lenders offer you on student debt consolidation loans. These lenders need to operate in way that generates a profit. That’s something the federal government doesn’t do. The best way to ensure that you’ll save money on interest is to compare the rate offered to the average interest rate on your loans. If the average interest rate on your current loans is lower, then consolidating them could result in more of your money spent on interest.
Third – Many traditional lenders have strict requirements for student debt loan consolidation. Most lenders will only give you a loan if you’ve finished your degree. They may also restrict loans based on the type of degree you finished.
Online lenders provide a bit more flexibility for student debt consolidation loans. They will look at more factors than traditional lenders. Also, these online lenders are one of the only sources for loans if you find yourself saddled with debt but don’t have a degree.
However, you still need to pay close attention to the other issues that come with consolidating student debt. That’s especially true when it comes to borrower protections and loan forgiveness programs. You still lose access to these if you use an online lender.
As you can see, debt consolidation loans are simple and complicated at the same time. Use the information in this guide to get the best debt consolidation loan deal. Be sure to understand what you’re getting into. Also make sure that you’re aware of all of the factors that can influence whether the loan you’re getting will be good or bad for your overall financial situation.
Debt is always a struggle. However, it doesn’t have to be a struggle forever. Debt consolidation loans are a powerful tool that can help consumers get a handle on their debt quickly and efficiently. It can help simplify your payments, save you money on interest, and help you pay down your debt faster. If all of those things sound appealing, the a debt consolidation loan might be the best choice for you.