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Buying Guide for Debt Help Services
What Is Debt Consolidation?
For those who may owe money to multiple lenders (credit cards, lines of credit, etc), debt consolidation is an effective way to take all those individual monthly payments and combine them into one. By taking out a new loan and paying off all outstanding debts, you may be able to streamline your finances for an easier-to-manage experience, and be left with just a single monthly payment to focus on. The benefit of debt consolidation, besides just making your payments easier to manage, is that it can also lower your interest rate - especially if you owe on high-interest credit cards. In some cases, you can take advantage of special introductory offers and you may be able to have your creditors paid directly by your new lender for an easier process. Ultimately, the goal is to be left with a lower monthly payment than what you were dealing with previously, and one that you will be able to remember to make on time.
How Does a Debt Consolidation Loan Work?
Debt consolidation begins with looking at what you currently owe and who you owe that money to. You will need to make a list of all your outstanding debts in order to find the total you are seeking for your debt consolidation loan. For example, say you currently owe:
- AMEX - $1,000
- Visa - $2,000
- Mastercard - $3,000
- Line of Credit - $15,000
This would mean your total outstanding debt is $21,000.
The next step in the process is to find a new lender who specializes in debt consolidation and who will be able to provide you with that lump sum of $21,000 so that you can divide it up between your creditors and leave all of your balances at $0. Providing you with a clean slate, you now owe nothing to anyone, except for the single monthly payments you will make to the new lender going forward. Not only will this new loan be easier to manage, but you will ultimately pay less over time as your new interest rate should be lower.
What Are APRs, Rates, & Terms?
A key benefit to debt consolidation is a potentially lower interest rate, but it’s important you understand these numbers in order to make an educated decision about which loan is right for you. One of the most common acronyms you will see while exploring loans is “APR”, which stands for Annual Percentage Rate, and this vital number will tell you how much you are going to be paying each year to have your new debt consolidation loan. Combining your interest rate and applicable fees, the APR is the best way of knowing if your new loan is a financially sound decision, or if it will ultimately cost you more in the long run. APRs typically range from around 3% up to 36%, and what you qualify for will depend on your credit profile, income, and the lender you opt for.
Other aspects of the loan to take into consideration are the term length and any associated fees you may have to pay. Lengthy terms can equate to a lot of added interest by the end of your payment schedule, so you will want to focus on a realistic plan where you can pay it off as quickly as possible but without stretching yourself too thin. You will also want to check to see if your lender charges early repayment fees, as well as what their general lending fees are. Extra fees, lengthy terms, and high APRs are what will cost you the most at the end, so do your research, compare offers, and take your time when choosing a debt consolidation loan.
Who Is Debt Consolidation Best For?
Debt consolidation loans are best for individuals who are struggling to stay on top of their monthly payments because they owe multiple lenders. Generally, they are aimed at those who owe $10,000 in debt or more, and who find the various payment dates and amounts difficult to remember. Through debt consolidation, the single monthly payment becomes easier to manage and simple to remember, and can help ensure you are able to pay on time month after month. Those who have been able to improve their credit, or who can qualify for a lower APR, should also find a debt consolidation loan to be beneficial as your monthly payments may be lower and you can potentially save money over the course of the loan.
While debt consolidation loans can be extremely useful for some, they aren’t the right choice for everyone. If you are continuing to accumulate debt, aren’t able to afford your new monthly payments, or owe on secured debts, then debt consolidation is unlikely to be a good fit. This process can only reduce the number of payments you’re making in a month, not reduce the debt you owe, and you will still be responsible for your new loan and its associated payments.
How To Choose a Debt Consolidation Loan
To find the right debt consolidation loan for you, the best place to start is by browsing through the various lenders available in your area. Some key things you will want to look for with each lender is:
- What APR do you qualify for?
- How flexible are the terms and do they charge early repayment fees?
- Are there any introductory offers to take advantage of?
- Do they have experts available to speak with directly?
- Can they offer you the full amount you are seeking?
- Will they pay your creditors directly or provide you with a lump sum?
- How quickly can funds be dispersed?
By answering these questions you can eliminate lenders who aren’t the right fit, narrowing your search down to those with terms, rates, and perks that suit what you’re seeking. Never rush your decision and truly take the time to explore all potential offers so you can find the most competitive rates and the best terms. Obtaining a debt consolidation loan can be a very rewarding experience that can help get you back on track to financial freedom, but only when it’s used properly and when you work with a trustworthy lender.
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