What is debt consolidation?
It is a process where you save money and cut down the number of your unpaid bills gradually.
It helps to turn 6 debts into one debt and makes you stress-free. The benefit of this debt relief option is that it involves less paperwork and lower interest rates.
How does debt consolidation work?
A debt consolidation plan helps you simplify your payments without having to borrow more money. When you enroll in the program, the consolidation company works out an arrangement with your creditors where you consolidate debt into one monthly payment at a low-interest rate.
You have to pay an agreed-upon amount to the consolidation company every month and they will disburse the amount amongst your creditors till all your loans are paid off.
How does it help you save money?
- Reduced interest rates
- Lower monthly payments
- Single monthly payments
- No late fees or fines
Your total savings depend on the type of consolidation you choose. So, let’s have a look at the best debt consolidation options and how they can help you to save dollars.
Pros and cons of debt consolidation
- It helps to combine the debt into one payment
- You can save money on interest and late fees
- You are less likely to miss out on deadlines
- You have to manage a single bill every month
- Debt collectors won’t bother you much
- It gives you the emotional and financial relief
- You’ll be in debt if you miss out on monthly payments
- Your debt isn’t eliminated until the completion of the program
- You have to change your behavior with money
What are the best debt consolidation options?
Can you consolidate all types of loans?
Loans are split into 2 groups when it comes to what can or can’t be consolidated using this debt solution – secured and unsecured.
Secured debts like mortgages and auto loans involve collateral. In the case of a mortgage, your house is collateral. Likewise, in the case of an auto loan, your vehicle is collateral. If you can’t pay back the loans, lenders can come and take your vehicle or foreclose your home.
Unsecured debts are not backed by any collateral. They don’t have anything that can be seized when you don’t pay.
So any type of loans or debts that don’t have a collotype of loans or debts that don’t have collateral can be consolidated. Usually, you can roll these types of bills into one payment:
- Medical bills
- Retail card bills
- Credit card bills
- Gas card bills
- Utility bills
- Unsecured debts
Which one is the right option for you?
Apparently, consolidation loans may seem to be the best way to consolidate debt. Don’t get swayed by the low monthly payments because there are many hidden costs you’re unaware of.
If the loan term is long, you’ll pay more eventually even if your monthly payments are low. In the case of a secured consolidation loan, you could lose your home or vehicle in the future.
A debt consolidation program is the best option because you pay a fixed amount every month. There are no hidden costs. You won’t lose your assets.
This debt relief option is a great tool to consolidate your loans into one monthly payment and get expenses under control. But does it work and when should you go for it?
Features of the best
debt consolidation programs
- Positive customer reviews
- Free counseling
- Affordable fee structure
- Less paperwork
- Flexible and affordable repayment plans
- Relief from debt collection harassment
When should you
Consolidate your loans?
- You are avoiding collection calls for outstanding bills
- You have crossed your credit limit
- You’re overwhelmed by debt and aren’t saving dollars
- You’re only paying the minimum amount to creditors
- You can’t manage multiple credit card bills at high-interest rates
- You’re ready to spend as per your means
How to choose the best debt consolidation companies near me
Google is too advanced nowadays. Whenever you search for something on Google, it automatically locates your current location and gives you the search results accordingly. So when you type ‘debt consolidation companies’ on Google, it shows you the top companies in your region.
Read reviews of these companies and find out if they have NFCC certified counselors, FCAA accreditation, good BBB rating, and excellent client reviews.
Use a debt consolidation calculator to figure out how much you have to pay in total. If the company has an expensive fee structure, then it’s better to avoid it. Check if the company charges an advance fee because the FTC prohibits it strongly. Calculate the tenure of the consolidation program, interest rate, and your monthly payments.
Bad companies often skip the main details of the process to prospective clients. Always ask the company to explain to you the consolidation process in detail. Ask various questions about the process from start to finish, and decide if the company has good intentions. Avoid companies that give you quick solutions without hearing your problems carefully.
How to qualify for consolidation loans
Maintain a good credit score
Lenders can check your credit history and score before giving you a loan. A good credit score helps you to qualify for a low-interest loan.
Watch out for the best credit unions
Most credit unions are non-profit organizations. They can give you personal loans at affordable interest rates.
Arrange all the documents
Lenders want to know if you can afford to pay off the new loan. They will check your bank statements, paystubs, identity proof, and address proof.
Debt consolidation information and FAQ
When you’re looking into debt consolidation for poor credit, your options are limited. It is tough to qualify for a consolidation loan at a low-interest rate with bad credit. Some lenders may agree to take a chance on you, but the interest rate on the consolidation loan will be very high. You won’t be able to save a lot of money. Some lenders may agree to lower the interest rate on the new loan, but they may lengthen their tenure. Eventually, you’ll pay more in the long run.
Honestly speaking, you’re less likely to qualify for a credit card with a 0% APR with a poor credit score. That’s why financial experts say your options are limited when you’re looking into debt consolidation for bad credit.
Ultimately, everything comes down to the consolidation program because it gives you the option to combine loans into a single monthly payment plan at an affordable interest rate. Good companies don’t charge an exorbitant fee when they combine the debt into one payment. They don’t check your credit score. So you’re saved.
A debt consolidation plan can have a positive impact on your credit report. Several accounts appear on your credit report as paid off. After you have completed the plan, lenders will update your credit report as “paid in full.” This will help to boost your credit score.
Timely payments help to build positive payment history, which affects 35% of your credit score. When you stay up to date on your payments after enrolling in a consolidation plan, your credit score starts rising gradually.
Depending on the steps you take after consolidating your debt, you can end up hurting your credit score. Late payments or missed payments can drop your score. So try to make timely payments every month.
You can consolidate your payday loans and get rid of high-interest rates with a consolidation program. The new interest rate is lower than what you’re paying on your payday loans. Plus, there are no late fees or penalties. Once you enroll in the consolidation program, the debt counselors will take care of your collection calls. So debt collectors can’t harass you anymore.
When you’re unable to make payments on your student loans, you may want to consolidate them into a single monthly payment plan. You can consolidate private student loans with a consolidation loan. The interest rate will depend on your credit score. However, if you have federal student loans, then you can take advantage of income-based repayment plans or the Direct consolidation loan for paying off your student loans with a fixed interest rate.
Income is a major concern when you’re applying for a consolidation loan. Lenders give a lot of importance to this factor. If you have limited income, then you have to convince lenders that you can afford the payments. A better choice might be a consolidation program where the debt counselors create a repayment plan on the basis of your limited income only. So a limited income won’t be a problem for you.
In order to qualify for a consolidation program, you have to fulfill the following requirements:
- You must have an active checking account
- You should have an active cell phone number
- You should have a valid email address
- You should be at least 18 years old
- You should have a regular source of income
It can be a bad idea when you have expensive habits. If you continue to swap credit cards like before, then a consolidation program won’t help. If you don’t save and make the required monthly payments, then also it’s a bad idea.
It is quite appealing when your financial life is out of your control. It helps you combine the debt into one monthly payment online. Since the entire consolidation process is done online, all you need is a laptop or a smartphone. That’s all. You can call the toll-free number of the consolidation company and clear your doubts about the sign-up process and the benefits.