Consumer debt in the U.S. currently sits at around $4.2 trillion. Between car loans, credit cards, and other types of debt, Americans are struggling financially, and many feel as though they’ll never be free. Can you relate? Are you desperate to get out of debt as quickly as possible? If this is the case for you, one of the most effective ways to control your finances is by taking out a debt consolidation loan. Read on to learn more about debt consolidation loans, how they work, and how to get one.
What Are Debt Consolidation Loans?
A debt consolidation loan is a type of personal loan that you can use to combine (or consolidate) all of your debts. In other words, you take out one big loan, use it to pay off all your other debts, then focus on paying off that one loan. Rather than making several different payments each month, you have to worry about one.
Pros And Cons Of Debt Consolidation Loans
As with any money management strategy, there are pros and cons to using a debt consolidation loan to pay off your debts. Here’s a breakdown of some of the benefits and drawbacks to keep in mind:
Pro: Pay Debt Off Faster
The first benefit of debt consolidation loans is the fact that you can pay off your debt faster. When you take out a debt consolidation loan, you’re often able to lower your interest rate. That, in turn, means you’re paying less money each month than you would be if you were paying off all your debts individually. Since you’re repaying less money overall, you’re able to get rid of your debt sooner.
Pro: Simplify Your Finances
Debt consolidation loans simplify your finances a lot, too. How many debts are you trying to pay off right now? Do you have a car payment? Multiple credit cards? A line or two of credit?
It can get confusing trying to remember the due dates for all of these payments, especially when you factor in the payment dates for your other bills (utility bills, rent, etc.). With a debt consolidation loan, though, you only have to worry about one payment per month. That means you’re less likely to forget (and get hit with those pesky late fees).
Pro: Build Your Credit
In the long term, a debt consolidation loan can help you to build your credit, too. The faster you pay off your debts, the sooner you’ll be able to boost your credit score. That, in turn, makes it easier for you to qualify for better loans in the future, should you need to take them out. It also increases your chance of getting approved for an apartment or mortgage.
Con: Upfront Costs
You may have to deal with some upfront costs when you take out a debt consolidation loan. That includes things like loan origination fees and balance transfer fees. In the short term, these expenses can set you back a bit. Long-term, you’ll likely end up spending far less than you would have if you’d continued to pay off each debt individually.
Con: Temporary Credit Hit
When you first take out a debt consolidation loan, your credit will take a slight hit. That is because you’re essentially taking on additional debt. Once you pay off all your other debts, though, and make some consistent payments on this larger loan, your score will start to increase, and you’ll be in a better place than you were before.
How To Get A Debt Consolidation Loan
Do the pros of a debt consolidation loan outweigh the cons for you? If so, here are the steps you’ll need to take to qualify for one:
Build Your Credit First
In some cases, it’s better to wait and build up your credit score a bit before you take out a debt consolidation loan. That is the case because your credit score influences the types of loans for which you qualify. By increasing your score, you’ll be more likely to qualify for a loan with a lower interest rate, which will help you to pay off your debt faster.
To raise your credit score, spend a few months being extra-diligent about making loan and credit card payments on time. Check your credit report, too, and correct any errors that might be lowering your score.
Make A List Of Your Debts And Payments
Next, make a list of all the debts you owe and the monthly payment required for each one. That helps you get a better idea of how much you need to borrow to pay everything off.
Once you know how much you need to borrow, start doing some research to find a debt consolidation or cash lender who can help you out. The best debt consolidation loans will cover at least the majority, if not all, of your other debts with a relatively low-interest rate. Compare a few different lenders to find the one with the best rates and terms.
Apply For Debt Consolidation Loans
After you’ve chosen a lender, your next step is to apply for a loan. Most lenders allow you to submit directly from their website and will get back to you within a few days to let you know if you’re approved.
Make Payments On Time
When your loan has been approved and comes through, use it to pay off your debts. Then, be diligent about making your new loan payment on time each month. Stick to the payment schedule, and you’ll be on your way to debt-free living!
Are Debt Consolidation Loans Right for You?
You now know a lot more about the advantages of debt consolidation loans and the way they work. With this information in mind, are you interested in taking this approach to money management? If so, we’re here to help at Champion Cash Loans. Check out our FAQs page to learn more about how we work, or fill out our quick form today to see how much you can borrow!