12/16/2022
Debt consolidation is a well known situation in the United States and many financial institutions offer you support to implement it.
Given the growth of indebtedness due to poor management of personal finances, loans to consolidate debts are more common and this is what we will discuss here in more detail.
How Debt Consolidation Loans Work?
Debt consolidation often requires you to use different types of financing, such as a loan to pay off what you owe. It is always important to understand the risks involved and know that there are additional costs you must bear.
- Loan amount: between $ 100 and $ 35,000
- Term: entre 7 days y 12 months
- Extra:Interest rate between 6.63% and 485% APRAddress: 1125 E. Broadway #545, Glendale, CA 9120
- Loan amount: between $ 200 and $ 50,000
- Term: entre 15 days y 120 months
- Extra:Quick online loans up to $50,000
- Loan amount: between $ 500 and $ 50,000
- Term: entre 15 days y 120 months
- Extra:Fast loans up to $50,000 for whatever you want.
Interest rates from 6% to 439% APR
Finansi Group SL - Calle de las Barcas 2 Piso 2, 46002, Valencia
- Loan amount: between $ 500 and $ 10,000
- Term: entre 3 y 1728 months
- Extra:Fast online loans even with bad credit.Interest rates between 5.99% and 35.99% APR
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- Loan amount: between $ 500 and $ 10,000
- Term: entre 3 y 36 months
- Extra:Interest rates between 5.99% and 35.99% APRAddress: Chief LLC, 2661 N Pearl St #431 - Tacoma, WA 98407
Generally, this resource is used to:
- Lower the interest rate you are paying.
- Lower the monthly amount of your debt outflows.
- Reduce the number of institutions to which you owe.
Debt consolidation loans are not a foolproof recipe in any case. Our suggestion is that you evaluate the available options to choose the most suitable for your financial situation.
It is possible that using additional credit could worsen your current state and, when you have a poor credit history, you shouldn't even consider it.
Types of Debt Consolidation Loans
As with other types of loans, those designed to consolidate debts come in 2 basic forms:
Secured loans
With secured loans you need some collateral so they can give you the money you are requesting. Often, these products have better interest rates than unsecured loans, which saves you money in the long run.
- Amount: between $ 2,000 and $ 500,000
- Term: between 1 year and 5 years
- Interest: 8.50%
- APR: 8.50%
For example, a home equity loan falls into this category and offers you a blended interest rate. You can also find secured credit cards.
While the interest paid on home equity loans is deductible, the interest paid on credit cards is not. The danger is that you can lose your home if you don't have a sufficient equity cushion.
Unsecured loans
As you might expect, these loans do not require you to have collateral. This option usually accepts an debt-to-income ratio (DTI) of over 50%, a FICO score of 585 and the requirements are more flexible than for a secured loan.
There is a wide variety of online platforms and banks that give you the opportunity to get this financing. In this area we find both personal loans and quick loans.
You can apply online, get approved the same day and find out who has the best conditions. Although they are simpler to process, the interest rate is more expensive than the secured option.
- Amount: between $ 2,000 and $ 500,000
- Term: between 1 year and 5 years
- Interest: 8.50%
- APR: 8.50%
- Amount: between $ 7,000 and $ 50,000
- Term: between 3 years and 5 years
- Interest: 8.42%
- APR: 8.42%
Approval requirements for debt consolidation
While a lender's evaluation is essential, so are the requirements needed to get the loan to consolidate debts.
You need to know how likely you are to be approved and whether the requirements are in line with your financial situation. In this regard, you can expect the following:
- Minimum credit history. Most lenders offering this financing usually ask for at least 3 years of good credit and 2 open accounts. Likewise, you should have no delinquencies, tax liens, bankruptcies, repossessions or foreclosures.
- Minimum FICO score. In this situation those who offer loans to consolidate debts are a little more flexible with the credit score. The lowest average they require is usually 580, but there are others who may raise it, so it's good to find out if you're within the expected range.
- Joint applications. While this option reduces risk for lenders, not everyone is willing to accept it. Having a co-signer allows you to qualify for more alternatives, but you must be careful to comply with the terms so you don't disadvantage the other person.
- Source of income. It is logical that financial institutions or companies want to know if you can pay or not. As with everything else, you should evaluate the terms of this requirement. A lender may only ask for a steady source of income or a minimum of $12,000 a year.
- DTI. The debt-to-income ratio refers to the amount of money you pay in debt each month, divided by your after-tax income. While this percentage should be below 40, those offering consolidation loans accept up to 50%.
Consolidating debts is not always the best option. In the event that you seek a loan for it, you will only have to pay one creditor. That's why it's important to evaluate what terms and conditions are most suitable.
There are many ways to carry out debt consolidation and borrowing money is one of many. The key is to have a plan to follow, change your bad financial habits and better manage your personal finances.
In Busconomico's comparator you will find many reliable options to leave debt behind.
Español: Préstamos para consolidar deudas