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If you’re looking for a way to consolidate your debt, there’s no shortage of lenders who can help you. There is no
Ideally, you should start by determining which debt consolidation method is best for you and assessing your financial and credit health to determine if debt consolidation is a good fit for you. You can move on to lender research and evaluation to find the best lender to pay off your overwhelming debt balance faster.
Identify the type of debt consolidation that’s right for you
The first step is to evaluate your debt consolidation options and choose the best method. Common methods are:
- Personal loan: Many lenders offer debt consolidation or personal loans designed to help you pay off your debt faster and save on interest. Debt consolidation loans typically have fixed interest rates and loan terms ranging from 1 to 10 years. You can use the funds however you like, but the idea is to pay off the outstanding debt balance with the proceeds of the loan.
- Zero APR Credit Card: Also known as balance transfer credit cards, these debt products can save you significant amounts of interest and can also help you pay off high-interest debt balances faster. These are typically reserved for consumers with good or excellent credit scores. Only consider this option if you can pay off any balances transferred to your card during the introductory period. Otherwise, you could end up paying a lot of money in interest.
- Home Equity Loan: You can convert up to 85% of your real estate assets into cash and use it to consolidate your debt with a home equity loan. Acting as a second mortgage, the repayment period he is 5 to 30 years. Interest rates are also fixed and lower than most credit cards, but the main drawback of these loan products is that they are home insured. As a result, if you default on your loan payments, you may lose your property through foreclosure.
- Home Equity Line of Credit (HELOC): A HELOC is a type of home equity loan, but you cannot receive a lump sum of the loan proceeds. Instead, you will have access to a pool of cash that you can withdraw as needed during the 10-year withdrawal period. Most HELOCs also require interest-only payments during the drawing period. After maturity, repayments can be made in monthly installments for up to 20 years. HELOC interest rates typically fluctuate, so monthly payments can fluctuate.
determine the qualification
Lenders want to know that you are creditworthy and have the means to make timely payments on the loans or credit cards you use to consolidate your debts. , credit history, and debt-to-income ratio can be expected to determine whether you qualify for a debt product.
Also, know that the most competitive interest rates are usually reserved for borrowers with good or excellent credit scores. A low credit score does not automatically mean that a loan or credit card will be declined. Still, they typically offer steep interest rates when approved to offset the risk of default imposed on the lender or creditor.
You may also find it unwise to consolidate your debt if your credit is poor if you only get higher interest rates than you are currently paying.
shop for lenders
Research a lender that offers the type of debt consolidation you are looking for. In most cases, we offer online prequalification through soft credit referrals. If you’re considering a debt consolidation loan, you can also take a sneak peek at potential loan costs to compare options more effectively.
Prequalification takes the guesswork out of finding a moneylender to work with you. Additionally, you can avoid receiving unnecessary hard credit inquiries by applying to lenders who may reject your loan or credit card.
evaluate the lender
Once you have a shortlist of at least three lenders, here’s what to look for next.
- Annual Rate (APR): This number represents the actual annual borrowing cost for the year. It includes interest and fees and is determined by your credit score and debt-to-income ratio.
- Lender Fee: Some lenders charge origination fees ranging from 1% to 10% of the loan amount. Even with a lower APR, another loan product may be a more viable option due to higher origination fees.
- Lender Features: Best lenders also have an online dashboard where you can monitor your account, schedule payments, and chat with customer service representatives. It’s also ideal if free educational resources are available to help you manage your credit and overall financial health more effectively.
Conclusion
Before you apply for a loan or credit card to consolidate your debt, weigh your options and decide which type of debt consolidation makes the most sense. Also, pre-qualify with at least three lenders to view potential loan quotes and compare options. That way, you can make informed decisions, reach your debt repayment goals faster, and save money.
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