Personal loans are unsecured loans that may carry lower interest rates and fees than credit cards. A personal loan can be used to consolidate high-cost consumer debt. Can a personal loan help with consolidating your debt?
Benefits of Debt Consolidation with a Personal Loan
- Convert several monthly payments to one payment
- Lower finance charges (APR) than many credit cards and payday loans
- Personal loans typically have repayment periods of one to five years and carry fixed interest rates.
- No "surprise fees". You may pay an application fee and late fees for late payments, but there won't be fees on top of fees with a personal loan.
- A personal loan is not secured by your home; it doesn't add mortgage debt against your home.
Personal Loans: Things to Consider
A personal loan can be a great solution for cleaning up several small debts, but because it is an unsecured loan, you may not qualify to borrow enough to consolidate all of your debts. You can expect lenders to check your credit reports and scores; if you owe high balances on several accounts or have made late payments your application for a personal loan may be declined.
A personal loan used for debt consolidation is only as good as your will power is strong. It's easy to fall into a trap of consolidating debt and thinking, "Well, I can use this credit card *this* time. After all, it doesn't have a balance..." This is how well-meaning debtors can end up in more debt than they had before they got a debt consolidation loan.
If you have poor credit or an insurmountable number of bills, a non-profit credit counseling agency may be able to offer a debt management plan. The credit counseling agency works with you and your creditors to arrange a mutually agreeable repayment plan. You make scheduled payments to the credit counseling agency, and they disburse funds to your creditors. Your credit card accounts may be closed and there is no guarantee that your creditors will work with a credit counseling agency. Fees can vary, and may be charged according to your income or ability to pay.
Our network of lenders offers personal loans and can help you find the right option for your needs.
How Much Do You Need (And What Does it Cost?)
Before contacting potential lenders, we recommend making a list of debts you wish to consolidate along with their balances and annual percentage rates (APR). Total the balances of the debts you want to consolidate and keep your list of debts handy when discussing personal loans with lenders.