There are plenty of debt consolidation lender options available if you’re looking to manage your debt. However, not all of them are worth considering if you’re serious about meeting your debt payoff goals. Here’s a look at some of the things you should keep in mind when choosing a debt consolidation lender.
Debt consolidation can be a great way to pay off your debt balances sooner, but it’s important to take some steps beforehand to make sure it’s the right solution for you. First, decide which debt consolidation method is best for your financial and credit situation. Then, research and compare different debt consolidation lender options to find the one that offers the best terms and conditions.
Choose the type of debt consolidation that’s right for you
If you’re looking to get out of debt, there are a few different options for consolidation. You’ll want to evaluate each one to figure out which method will work best for you. Some common methods include:
Debt consolidation loans and other types of loans can help you save money on interest and pay off debt faster. Some loans have a fixed interest rate and a loan term of one to 10 years. You can use the funds from the loan for any purpose, but the goal is usually to pay off outstanding debt balances with the loan proceeds.
Zero APR credit card
Do you have good or excellent credit? If so, a balance transfer credit card with 0% APR could help you save on interest and pay off debt faster. However, it’s important to only consider this option if you can pay off the balances you transfer during the introductory period. Otherwise, you could end up paying a lot of interest.
Home equity loan
A cash-out refinance loan lets you borrow against the equity you’ve built up in your house. You can use this money to consolidate debt, pay for major expenses, or make other financial moves. This type of loan usually comes with a fixed interest rate and a repayment period of five to 30 years. The biggest downside is that if you can’t make your payments, your house could be foreclosed on.
Home equity line of credit (HELOC)
A HELOC is a type of loan that allows you to access a pool of cash that you can use as needed over a 10-year period. With most HELOCs, you will only be required to make interest-only payments during the draw period. At the end of the draw period, you will begin making monthly installment payments over a term of up to 20 years. The monthly payment amount may fluctuate since the interest rate on HELOCs is typically variable.
Determine your qualifications
Lenders use your credit score, credit history, and debt-to-income ratio to determine whether you’re eligible for a debt consolidation loan or credit card. A high credit score and low debt-to-income ratio show that you’re creditworthy and have the ability to make timely payments.
If you’re hoping to get a loan or credit card with a competitive interest rate, you’ll need a good or excellent credit score. However, having a lower credit score doesn’t mean you can’t qualify for financing; you may just be subject to a higher interest rate to make up for the default risk posed to the debt consolidation lender.
If your credit is bad, it may not be a good idea to consolidate your debt. If the consolidation loan has a higher interest rate than what you’re currently paying, it may not make sense to do it.
There are a few things to consider before seeking out a debt consolidation loan. First, make sure that the debt consolidation lender you’re considering offers the type of loan that you’re looking for. Most lenders will offer some kind of online prequalification, which will give you a sense of what kind of loan terms you might be able to get.
If you want to avoid the hassle of dealing with lenders who may not be willing to work with you, then you should definitely get prequalified. By doing so, you can also avoid having your credit score unnecessarily lowered by hard inquiries from lenders.
Evaluate the debt consolidation lender
Once you have selected a few potential lenders, here’s what to look for:
- Annual percentage rates (APR): This figure represents the actual yearly cost of borrowing for the year. It is determined by your credit score and debt-to-income ratio. It includes interest and fees.
- Lender fees: Some lenders charge origination fees that range from 1 percent to 10 percent of the loan amount. Additionally, some of them charge prepayment penalties or late fees.
- Lender features: When you’re looking for a good lending institution, it’s important to find one with features that suit your needs. A great lending institution will have an online dashboard where you can monitor your account, schedule payments, and chat with customer service representatives. If free educational resources are available to help you more effectively manage your credit and overall financial health, that’s even better. With so many options out there, take your time to find the perfect lending partner for you.
The bottom line
There are many options available when consolidating debt, so it’s important to weigh all of your options carefully. It’s also a good idea to get prequalified with multiple lenders so you can compare loan quotes and find the best option for your needs. By taking the time to do this research, you’ll be able to make an informed decision that will help you save money and pay off your debt faster. You can read customer reviews on sites like the Better Business Bureau (BBB), which accredits and rates companies and allows people to file complaints and share their experiences.