Debt consolidation can help you start the journey toward a smoother financial future by using a single low-interest rate loan to pay off multiple debts. Debt consolidation may take the stress out of having to manage and prioritize payments to multiple lenders, could save you money and help you to get out of debt faster. A low-interest rate personal loan is just one of the ways how debt consolidate works, take control of your finances and ease the burden of past spending.
Debt Consolidation Process
Getting a handle of your debt by consolidating is simple but be sure to choose a debt consolidation solution thoughtfully. When considering options, look for solutions that could help you save money and pay off your debt quickly without negatively impacting your credit.
4 things to consider before you decide which debt consolidation solution is right for you.
- Take inventory of your debt and interest rates to determine how much you’ll need to borrow.
- Know your financial situation. Take a look at your income and monthly expenses to determine how much you’ll be able to afford towards a monthly consolidation payment.
- Research debt consolidation options such as debt management programs, home equity loans, credit card balance transfers and personal loan debt consolidation.
- If a personal debt consolidation loan is right for you, compare lenders and choose one that offers the best interest rates and terms to meet your financial needs.
There are many ways to consolidate and get out of debt but keep in mind debt consolidation, debt management, and debt settlement are very different. Each has its advantages and disadvantages — which we explore below.
What’s the difference?
If approved for a debt consolidation loan, you’ll receive a lump sum to pay off your balances — combining your debts into one loan with a single payment, interest rate, and loan term.
Debt settlement is the process of paying off negotiated balances which are less than what’s owed. In exchange, your outstanding balance is considered paid in full. While paying less than what you owe may sound appealing, debt settlement could have negative repercussions. See below for more detail.
Debt management programs help you negotiate with current creditors to come up with a way to help you repay your outstanding balances without lowering the balance you owe. Unlike debt consolidation, your balances will not be combined under one loan. Instead, you’ll make a monthly payment to a credit counseling service which negotiates on your behalf to lower your interest rate and establish a repayment period.
The Pros and Cons
|Debt Consolidation||Debt Settlement / Debt Relief||Debt Management|
|The Pros||You may be able to consolidate all outstanding balances, resulting in one monthly payment. Lower interest rates aid in paying off debt quicker.||Lowers your debt amount. May help you avoid bankruptcy.||Credit counseling agencies negotiate with your creditors to reduce interest and limit fees. Financial counseling may be provided to help you avoid future financial difficulties. One monthly payment is made to the counseling service who disburses payments for you.|
|The Cons||You may be subjected to fees if you make a late payment. A good credit score will be required to ensure a low interest rate.||No guarantee your creditors will negotiate and it could then negatively impact your credit. Debt settlement companies may charge a fee. Then if the amount that’s forgiven could be considered taxable income.||You could risk losing the agreement if you miss a payment to the credit counseling service. Debt management programs may hurt your credit rating if the lender reports that you’re not repaying the loan.|
How Does A Debt Consolidation Loan Work?
When considering a change to improve your financial health, a debt consolidation loan might be the right path. The solution is simple. Apply for a debt consolidation loan, and start paying off your debt with one monthly payment.
Are you a good candidate for a Consolidation Loan?
In order to be successful with debt consolidation, ask yourself the following questions:
- How much debt do you have and how does it compare to your income?
- What’s your credit score and is it good enough to qualify for a low-interest rate?
- Will you be disciplined to pay back your loan, and not run up additional debt?
- Will you be able to afford monthly payments on a consolidation loan?
Benefits of Debt Consolidation Loans
A debt consolidation loan could help you get your financial life back on track with:
- Lower interest rates to help you save money.
- An easier way to repay debt with just one monthly payment.
- Potential improvement to your credit rating.
Ready to get a better handle on your debt? A debt consolidation loan could be the a perfect solution. Get on the path to a brighter financial future.