For those that are drowning in debt, debt consolidation can look a lot like a ring buoy. Before getting into any kind of financial agreement, it’s always good to know exactly how it works and how it will affect you and your credit. Fortunately, this information is easy to find and the benefits that can be reaped by getting a debt consolidation are well documents.
The Mechanics Behind Debt Consolidation.
Debt consolidations work just about how they sound like they would work. You take out a personal loan, and that loan pays off the rest of your debts. This allows you to have all of your monthly payments in one convenient place, and this method is especially useful for people that have a lot of different debt sources. In most cases, debt consolidation will improve your credit over time but you need to be sure to work on the habits that got you in debt trouble in the first place or you could dig yourself into an ever-deeper hole. There are a few common methods that people use for debt consolidations, and what’s available to you depends entirely on your assets and credit.
Using Personal Loans For Debt Consolidation.
Personal loan debt consolidations are the easiest debt consolidations to get. You have to meet the lender’s credit score requirements, which can be in the mid 600’s but bad credit lenders can go as low as 580 in many cases. If your credit score is even lower than 580 you may still be able to find a lender that is willing to work with you, it just might take a lot more work than someone with a credit score of 580 or higher. These personal loans can have high-interest rates, so it’s good to make sure you understand the terms of the loan before you begin so you can be sure that this won’t make your life even harder. Many personal loans of this type have prepayment penalties, and can also have steep late payment fees so make sure that you can manage a personal loan so you don’t find yourself in hot water.
Transfer Card Debt Consolidations.
Transfer cards are a little harder to get than personal loans as they require a higher minimum credit score. On average the credit score you need for a transfer card is 670, which is why this method is less common than using a personal loan. This method does have its fair share of perks though, in many cases, you can find transfer cards that have promotional low-interest rates. This means that if you pay it off quickly you can save a lot of money on interest, but if you take too long to pay it off you can pass the end of the promotional period and end up paying a lot more in interest as a result.
Other Methods Commonly Used.
The two methods we’ll go over in this section require you to have certain assets. Firstly, a 401k loan for debt consolidation. There are limits on how much you can borrow from your 401k so this may just be a part of your debt consolidation plan, but this has nothing to do with your credit because it’s less like a loan and more like taking money from one pocket and putting it on the other.
The other method that requires you to have certain assets is using a home equity line of credit to do debt consolidation. This method does require you to do a credit check, and you need to have some equity on your home for this to work. The biggest downside of this method is that you have to put your home up as collateral for your debt consolidation, but if you’re confident that you can handle it and that it will be better than your current situation it may be something to look into.
Debt Consolidation To Make Your Life Easier.
Having a lot of creditors can be very stressful. You could be paying a lot of money every month to a lot of people, and if you forget any of them it can cause you huge headaches and financial hardship. Fortunately, debt consolidations exist just for this reason and can help you sleep better at night so long as you stay on top of your habits that got you into debt trouble in the first place.