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Having multiple outstanding debts can feel like you’re drowning. You have a maxed out credit card, your student loans are breathing down your neck, and that medical bill from an emergency hospital trip just won’t go away. All of your extra income is going towards paying off debts and you just can’t live your life the way you want. Making the minimum payment isn’t going to get you anywhere and you’ll end up spending hundreds, if not thousands, of dollars more than your original debt. If this sounds familiar, you may need a debt consolidation loan.
Debt consolidation loans are loans that allow you to pay off multiple outstanding debts and repay the full amount with new terms to a single lender. This type of loan will generally have a lower interest rate than the average of your outstanding debts and a longer loan term to keep repaying it from becoming a financial burden. They’re mean to get you out of debt, not put you back in it.
Each of your debts has their own balance, terms, and interest rates. Some have longer terms and higher interest rates or cover a more important debt than others. This can make certain debts “more important” to pay off faster. If you’re hitting financial troubles, you may have to make the hard decision of which debt gets paid this pay period while the rest get pushed until the next one.
It’s an unenviable position, but one that thousands of Americans find themselves in each and every month. Do they pay the mortgage or the car loan? The credit card or that old medical bill?
With a debt consolidation loan, you can pay them all off in one fell swoop. No more worrying about due dates and different amounts. Late fees and possible damage to your credit rating will be things of the past. No more hassle making like a payment what feels every few days. One payment, one lender, one interest rate.
Every debt consolidation loan provider is different so they’ll have their own requirements, but there are criteria that are standard across the industry. When you apply for one of these loans, be sure to have the information handy to speed the process along.
Taking out a debt consolidation loan is a great way to save money while paying off your debts. Outstanding credit card debt, student loans, and other debts can have higher than average interest rates which can cause you to spend hundreds or thousands of dollars more than the original debt. If you don’t want to pay that extra money, you have two options; 1) pay the loan off ASAP or 2) get a debt consolidation loan.
These loans typically have lower interest rates than your outstanding debts so you’ll end up paying less while you take control of your finances. You’ll pay a set amount each month with a fixed interest rate that’s based off of your credit history. This won’t change for the duration of your loan so you can factor it into your budget rather than have it break your budget like your old debts.
These two things often get confused for one another, but make no mistake, they are very, very different. We’ve already covered debt consolidation so you know everything on that front. Debt settlement is when you hire a company to negotiate on your behalf with your creditors for a lump-sum payout. This is typically for less than your total amount owed.
In a perfect world, this would work and we’d all be able to pay off our debts for less than we actually owe. However, it rarely goes this way and you still have to pay the company regardless of the outcome. So in all likelihood, you’ll end up in a worse place than you began.
A lot of people call debt settlement a scam and they’re sometimes correct. Sometimes this works, but like we said, it’s rare.
If you’re going to try the debt settlement route, you don’t owe them a cent until they settle or reduce your debt. Charging you before that is against the law. Also, don’t trust that they’re going to help you with late fees or interest payments. Keep paying your debts while you’re going through this process. They’re your debts, not theirs. If you’re late or you miss payments, they’re on you.
9.99999 times out of 10, debt consolidation is far better than debt settlement.
How much can you save with a debt consolidation loan?
That depends on the state of your outstanding debts, their interest rates, and the remaining time left on them. However, through our market research, most borrowers tend to save $200 – $400, but we have seen instances where they’ve saved $1,000+.
How will I get my debt consolidation loan?
Once approved, your funds will be deposited straight into your bank account so you can pay off your old debts once the money is available.
Will there be a credit check?
Yes. While it is an unsecured loan, it has different lending criteria. Your credit score and payment history is important and a heavy factor on whether or not you’ll qualify. Having less than stellar credit may not disqualify you, but it may cause additional conditions on your loan. If you don’t qualify, you can still use a personal loan to pay off your debts.
Will a debt consolidation loan fix my debt?
No, it’s just a tool. It’ll help you pay off the debt you have now, but if you don’t pay off that loan or fix the spending habits that caused the debt in the first place, you’ll find yourself back where you began. We recommend the use of these loans in conjunction with budgeting and proper money management.
Cary Silverman is a consummate entrepreneur having sold multiple companies during his 20 years of business experience in the financial industry, but for him, it isn’t about the money. His success is rooted in his passion to focus on doing something better today than it was done yesterday. These days, he’s the CEO of Waldo General, Inc. that oversees the operation of King of Kash.