What are secured debt consolidation loans?

Personal loans affect your credit score in the short-term and in the long-term. In the short-term, a personal loan may damage your score because it causes a hard credit inquiry and increases your debt load. But in the long-term, a personal loan can either help or hurt your credit, depending largely on whether or not you pay the bills on time. Ultimately, it’s up to you how much impact the personal loan will have.... read full answer

How a Personal Loan Affects Your Credit Score:

• Does temporary damage with an initial hard inquiry. When you first apply for a personal loan, your credit score will immediately take a small hit. That’s because applying for a personal loan triggers a hard inquiry into your credit history. But this shouldn’t drop your score by more than 5 points or so, and you should be able to bounce back quickly.
• Adds to your overall debt. If you’re approved for a personal loan, you will immediately have a higher debt load, which may cause your credit score to drop in the short-term. That’s because the more debt you have, the riskier it is for banks and credit unions to lend to you.
• Reports to the major credit bureaus monthly. The banks, credit unions and online lenders that issue personal loans report payment information to the major credit bureaus on a monthly basis. If you make on-time payments, you can expect your score to increase. But if you are late or don’t pay altogether, your score will drop.
• Improves your credit mix. Proving yourself capable of managing multiple types of loans and lines of credit responsibly is good for your credit score. It shows you can be trusted to repay what you borrow in a variety of situations. So if you only have one or two other types of accounts on your credit report, such as credit cards or student loans, your score may benefit in the long run from getting the personal loan.
• Could help reduce credit utilization. Personal loans give you a lump sum up front, which you pay back in monthly installments. This is different from a credit card, where you can borrow up to a certain amount any time you want. Credit cards are known as “revolving credit,” and a big part of your credit score is how much of your revolving credit you use up each month, or your “credit utilization ratio.” Personal loans don’t count toward this ratio, so if you use them to pay off revolving debt, you can lower your ratio and improve your score.

In conclusion, as long as you’re sure to pay on time each month, a personal loan should eventually increase your score by a lot more than the initial inquiry caused it to fall. You can also avoid wasting hard inquiries by getting pre-qualified for a loan first. Pre-qualification only uses a harmless soft inquiry. And while it doesn’t guarantee approval, it will let you know if your odds are good.

To get a debt consolidation loan, you must be at least 18 years old and have a steady income as well as a credit score of at least 660. Not all debt consolidation loans will require a 660+ credit score, but it’s unlikely you’ll get rates that are worthwhile for consolidation with a lower score. People who meet the general requirements for a debt consolidation loan will find the process of getting approved to be pretty easy. It really comes down to comparing offers in order to find the right one for your specific needs.... read full answer

Depending on the lender, you may be able to apply for a debt consolidation loan online, by phone or in person. You can expect to receive a decision within a few business days, if not instantly. Applicants typically receive their funds within 7 business days of being approved. Using those funds to pay off existing debts and consolidate what you owe can take another few days to a few weeks, depending on the lenders you owe and how you choose to pay them.

Now that you know the basics of getting a debt consolidation loan, it’s time to learn about the specifics of each step in the process.

How to Get a Debt Consolidation Loan

Compare personal loan offers

The most important factor when comparing personal loans is the APR. You’ll want the lowest rate possible to help you pay off your existing debts faster. However, you should also take into account how much each loan charges in fees, how much you’re able to borrow, and how long you can take to pay the loan off.

Identify lenders that work for your situation

Lenders have a minimum credit score that they require for approval – often 660. And unless you have good or excellent credit, you’re not likely to get rates that are worthwhile. In addition, not all lenders will allow you to consolidate all kinds of debt. For example, many don’t allow student loan consolidation, and some lenders specialize in only one type of consolidation (e.g. Payoff and credit cards).

Get pre-qualified

Pre-qualification doesn’t guarantee approval, but it will give you a sense of how likely you are to be approved as well as what rates you might receive. If you want to pre-qualify for multiple lenders at once, rather than one at a time, you can use WalletHub’s pre-qualification tool.

Submit an application

After you settle on a debt consolidation loan offer with a low enough APR and a high enough loan amount, you can submit an application online. You may also be able to do it over the phone or in person. Make sure you fill out the application accurately and truthfully.

Wait for a decision and funding

Often, applicants for debt consolidation loans will receive a decision instantly. But that won’t always be the case. You should expect to wait around 7 business days for the entire decision and funding process to finish. Your wait could be shorter than that, or as long as a month, depending on the lender and your personal situation.

Once you receive your debt consolidation loan, you’ll use the money to pay off your creditors. From that point on, you’ll owe all of the debt to the company that issued the consolidation loan. Make sure to submit your monthly installments on time to ensure that the lender reports positive information to the credit bureaus each month.