Financial experts will tell you now is the best time to consolidate your debts and pay off your bills.Â Here’s why.Â These loans have the lowest interest rates.Â A debt consolidation loan is a great option to help you get out of debt faster, especially if your credit cards are in bad shape or you have accrued bills due to the Covid-19 pandemic.
Is it possible to get a debt consolidation loan in a useful way?
We can answer the short question yes. But we must look deeper.
How debt consolidation works
The debt consolidation loan consolidates your medical bills, credit card debt and other debt into one low-interest loan.Â You will only pay one monthly payment once your loans have been merged.Â You will only have one monthly repayment if you have multiple loans. This makes it more difficult to repay your loans.Â Debt consolidation can eliminate this problem.
Consolidating debt is also advantageous because it doesn’t compound your interest.Â The interest rate you pay to repay the loan will not change until you cancel it.Â Online lenders, credit unions and banks can provide debt consolidation loans that are unsecured.Â While some lenders provide instant approval and screening for online loans, others might require supporting documentation before approval.
Lenders will require you to meet their debt/income ratio threshold, as debt consolidation loans can be unsecured.Â Your credit score will determine the interest rate you are offered. The higher your credit score, the lower the interest rate.
You can consolidate debt to pay off certain unsecured debts, such as:
- Payday loans
- Medical bills
- Credit card debt
Are you eligible for a debt consolidation loan?
Before you begin looking for a lender you should know if your chances of getting a loan are good and if the rate is reasonable.Â These are some of the factors that lenders take into consideration:
Lenders determine the minimum credit score required to get a consolidation loan for debt.Â A consolidation loan is only available to those with a good (680+) credit rating.Â A good credit rating will result in a higher interest rate than those with a better credit rating.Â Lenders will consider you a high-risk borrower.Â You will be able to get the best deal if you have a high credit score.
Lenders set minimum income requirements for loan applicants, just like credit scores.Â They look at your debt to income ratio.Â A lower debt to income ratio will allow you to qualify for the best loan terms.Â This means you will only spend a small portion of your income on debt service.Â Lenders may allow up to 50% debt to income ratio.Â If your debt to income ratio is 50%, you will be using half of your monthly income for the loan payment.
Credit history refers to how many loans you have paid off.Â A consolidation loan with a low interest rate is possible if your credit history does not include foreclosures, bankruptcies or tax liens.Â Any credit issue that negatively impacts your credit score will reduce your chances of getting loan approval or increase your chances of receiving a high-interest loan.Â Bad credit history can indicate that you are high-risk borrower.
Which are the most reliable lenders?
The best lender will offer the lowest interest rate, approve your loan application quicker, and is considered the best.Â Consider these factors when looking for the best lender:
- Customer Service Ratings
- Options for reimbursement
- Penalties and fees
- Conditions for loans
- Interest rate
- The speed with which the loan is approved
Some lenders have restrictions about how the loan is used.Â Lenders may not allow loans for tuition fees or business expenses.
These are some of the top lenders:
- PenFed Credit Union
- Rocket loans
- Best egg
- Loan Club
Is it possible to get a debt consolidation loan?Â Yes.Â As you can see, your credit score, income, and credit history will all play a role in whether you are approved.Â One of the biggest advantages to debt consolidation loans is their ability to improve your credit score.Â However, this can only happen if you use the loan to repay your debts.