Grace Enfield, Content Writer
You should get a debt consolidation loan if you have hard-to-manage debts owed to multiple creditors and if you can get a lower APR on the new loan. Other situations where you should get debt consolidation loans include when the fees aren't excessive and when other options, like a balance transfer credit card, aren't better. In general, a debt consolidation loan should save you money and help you get out of debt faster.
When You Should Get a Debt Consolidation Loan
When it gets you a lower APR
If you can qualify for a new loan with a lower rate than your original debts, it will reduce the overall cost of what you owe and help you pay it off faster. You can use WalletHub's free personal loan calculator to estimate how much a lower APR could save you.
When you're having trouble managing multiple loan payments
If it's hard for you to keep track of when you need to make payments, it might be best to consolidate. Consolidating combines your original debts into one, easy-to-remember monthly payment. The new lender may even use the loan money to directly pay off your existing creditors if you give them the information for those creditors.
When the fees for the new loan aren't excessive
If you have a credit score of 660 or higher, you may be able to qualify for a debt consolidation loan with no origination fee. Other loans may charge an origination fee of 1% to 8% of your loan amount, which could increase the amount you owe.
When other options aren't better
Using a balance transfer credit card, considering debt settlement or getting a loan from a friend or family member may be a better option for you. A balance transfer credit card can get you 0% interest on your balance for about 13 months. After this introductory period ends, you will be subject to the card's regular APR, which may be higher than the APR on your original debts.
Debt settlement is when a debt settlement company negotiates with your creditors to have a portion of your debt forgiven. These programs are risky because the settlement company may withhold funds from your creditors until you default, making it easier for them to reach a settlement. This is really bad for your credit sore, and if a settlement is reached, it could stay on your credit report for seven years.
Ultimately, you should get a debt consolidation loan if it will save you money and help you pay off your debts sooner. To see which lenders may approve you and what rates may be available to you, check out the free pre-qualification tool on WalletHub.
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