If you’re up to your eyeballs in debt, a personal loan may seem like the perfect way to find relief. You’ll get the benefit of paying one creditor each month instead of several. Plus, you’ll probably save on interest, and eliminate your balances more quickly.
However, since there are so many personal loans for debt consolidation out there, how do you know which options are worth considering?
Read on to learn more on how to evaluate your options.
1. Check the qualification criteria
Not all lenders are made equal. In other words, some will have more stringent qualification criteria than others. So, when conducting your initial search, you’ll want to be mindful of the following:
- Minimum credit score: if the lender doesn’t post this information, call to inquire. Having a lower score doesn’t mean you won’t qualify, but it helps to know where you stand before applying.
- Work history: It’s common for those who’ve recently entered the workforce to seek out more affordable financing for their credit card debt. However, some lenders require you to have been employed for a minimum number of years.
2. Compare interest rates
As with most debt products, the lowest interest rates go to the customers with the best credit scores. Having blemished credit doesn’t mean you won’t get approved, but the loan will be more costly. In some instances, the interest may outweigh the benefits of debt consolidation, despite the fact that consolidating is more convenient.
The following scenarios illustrate why it doesn’t always pay to consolidate your debt using a personal loan:
3. Remember the fees
Some lenders cater to consumers with less-than-perfect credit. What seems like a good way to get out of debt could be another debt product riddled with fees. You should be mindful of origination fees before applying for a personal loan to consolidate your debt.
“If you’re saving a minuscule amount just to make the payments easier, the costs of originating a new loan won’t make much financial sense,” notes Jeff White, JD and Analyst at Fit Small Business. Also, inquire about prepayment penalties, because they could cost you a fortune if you plan to pay off the loan early.
4. Choose a repayment period
If you’re looking to consolidate installment loans, pay close attention to the proposed repayment period. An extended loan term may lowers your monthly payments but it also means you’ll pay more in interest over time. And, if the rate on the personal loan is similar to what you were already paying, you could end up paying more.
Some important considerations
Some companies that claim to offer debt consolidation products are credit counseling agencies. Instead of paying off your debt and collecting the proceeds from you through a new loan, they pay your creditors on a monthly basis in exchange for a fee. Some also negotiate with creditors to secure a lower monthly rate or settlement. This may not be a bad idea if you don’t qualify for a debt consolidation loan and you need help to set up a budget and negotiate with lenders.
Where to Find Personal Loans for Debt Consolidation
Are you ready to start searching for debt consolidation loans? To help you find the most competitive rates, use SuperMoney’s personal loans review and comparison tool. This tool allows you to view a variety of lenders along with their qualification criteria, APR ranges, and amounts. You can also see reviews from existing customers. It can be accessed free of charge and it only takes a few minutes of your time.
Most lenders also offer a pre-screening tool to help you determine if their loan products are a good fit. So, consider using this tool to help you narrow down your final options. There is no impact to your credit since it only performs a soft pull on your credit.
Finally, run the numbers to confirm you can afford the new monthly payment before signing on the dotted line.