Introduction
Americans today collectively owe over $1 trillion in credit card debt and other types of burdensome high-interest loans. Managing scattered payments and due dates across multiple uncoordinated accounts becomes chaotic, expensive and emotionally draining. Consolidating various debts into a single, lower-rate unsecured consolidation loan simplifies finances and lightens interest costs over the long run.
This guide examines using debt consolidation lending to regain control, pros and cons to weigh, where to find reputable offers, required steps to qualify and key questions to have answered first regarding these strategic personal loans ideal for refinancing debts more affordably under one roof.
What Is Consumer Debt Consolidation?
Debt consolidation involves rolling multiple higher-interest credit cards, payday loans and other uncollateralized debts into a new loan product at a lower single interest rate for easier management. Borrowers take out fresh financing from a reputable lender or credit union, then distribute borrowed amounts across existing accounts to pay down or zero out balances with the previous companies.
This leaves borrowers owing a single predictable monthly loan payment to only one creditor at better terms over an extended period, instead of varying sums across scattered accounts. Streamlining debt repayment this way reduces complexity and monthly costs.
Pros of Consolidation Loans
Top pros associated with consolidating debts into purpose-built lending products include:
Lower Rates – Consolidation loans reduce blended APR interest costs on debts by up to 40-60% via improved rates on new loans. This keeps more of monthly payments going to principal.
Single Payment – One predictable bill per month rather than remembering several complex, varying payments across different lenders. Saves processing costs too.
Set Repayment Period – Longer structured terms up to 5-7 years mean lower fixed monthly payments until debts completely disappear. No perpetually ballooning balances lingering.
Simplified Tracking – Following just one account for changing balances, interest accruals and remaining terms removes constant guesswork juggling obligations.
Coordinated Service – Communicates with only one lender’s support department regarding flexible repayment options during emergencies or life changes.
Considerations When Consolidating Debt
While combining debts often lowers interest costs overall, be sure to weigh all factors:
Upfront Loan Fees – Most lenders charge 1-5% origination fees deducted from disbursed loan amounts that get tacked onto principal.
Application Commitment – Applying generates hard credit check inquiries that remain on reports for 12 months, temporarily impacting scores by up to a few points.
Loan Default Severity – Missed consolidated loan payments trigger higher penalties like collections, judgments or asset seizures versus defaulting smaller revolving lines of credit.
Credit Availability Loss – Paid off cards lose freed-up credit access that gave flexible spending power, requiring alternative backup funding sources.
Missed Card Rewards – Forfeiting points/miles incentives valued at potentially hundreds of dollars annually depends on repayment diligence carrying new loan debt rather than charging recurring expenses.
Carefully project costs under each option – continuing as-is or consolidating into a purpose-built unsecured loan – to guide best personal moves.
Where To Get Reputable Debt Consolidation Loans
Consumers have options between national banks, online lenders and credit unions when seeking debt consolidation loans, including:
LendingTree – Marketplace for refinancing quotes across partner lenders, including banks like Citi and Marcus. Offers fixed rates from 5-35% APR.
Lightstream – Specializes in debt consolidation loans for prime borrowers wanting fixed rates starting under 6% and flexible terms.
SoFi – Prominent fintech lender catering to young professionals needing to consolidate student loans and high-limit credit card balances.
PenFed Credit Union – Member-focused nonprofit with fixed rates as low as 7% APR and no origination fees or prepayment penalties.
Evaluating multiple lender options ensures finding the optimal single resource for affordably refinancing what’s been financially fragmented.
Steps for Getting Approved
Typical steps when consolidating consumer debts through unsecured personal loans include:
- Document Debts – Detail current creditor names, account numbers, interest rates, minimum payments and balances across all unsecured loans, credit cards and lines of credit.
- Check Credit Reports – Review scores and reports from Experian, Equifax and Transunion reflecting financial management history influencing approval odds and offered terms.
- Calculate Refinancing Impact – Estimate monthly and lifetime cost differences between maintaining current payment obligations as-is versus consolidating under new rate scenarios into a single coordinated loan.
- Submit Loan Applications – Complete requests with multiple lenders providing debt consolidation loans or balance transfer credit cards. Compare resulting offers.
- Choose Best Option – Select top offer across applications based on lowest qualifying rates, monthly payments fitting budget, loan access timing and overall experience interfacing with lender.
Following structured research, application and selection processes result in ideal debt consolidation outcomes meeting personal finance improvement goals.
5 Key Debt Consolidation Questions
How much money can I save monthly by consolidating debts?
Cost savings range widely based on total debts, the differential between existing interest rates and new loan rates offered, whether origination fees get charged, and changes to monthly payment timelines stretching or shrinking. Plug details into online calculators to estimate potential savings after weighing these variables.
Will consolidating worsen my credit score?
In the short run, yes, as hard inquiries and lower aggregated available credit negatively impact credit scoring factors. But over 12+ months, simplifying outstanding debts into a managed single loan helps overall utilization metrics and mix of credit improving scores.
What debt amounts are ideal consolidation loan candidates?
Prime “sweet spot” balance consolidation amounts span roughly $10,000 to $25,000 where loan interest savings outweigh fees while keeping terms reasonable. Carrying higher balances risks bad terms, while lower debts see fewer gains.
Can I get approved for a consolidation loan with bad credit?
Yes, subprime lenders provide debt consolidation loans to borrowers with scores as low as 550 using higher interest rates to offset risk. But terms vary greatly, so shop carefully for best bad credit consolidation offers.
What are alternatives if I get consolidation loan denial?
Consider no-fee balance transfer credit cards with intro 0% interest periods, nonprofit credit counseling to negotiate current debt payments/rates, or changing spending habits and budgets to pay off debts aggressively without additional financing.
Conclusion
Struggling under the compounding weight of scattered high-rate unsecured debts puts financial soundness and sanity at risk. Consolidating revolving credit balances into a thoughtfully structured unsecured loan with lower single interest payments offers a strategic path to regain control through simplicity and savings. Get informed across all aspects of debt consolidation loans fitting personal finance contexts before committing to ensure the decision leaves no regrets down the road.