4 reasons to take out a personal loan for debt consolidation


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If you’re juggling high-interest credit card debt, taking out a debt consolidation loan to pay off those balances offers 4 major benefits. (Shutterstock)

You can Consolidation of high-yield credit card debt in a variety of ways, including home equity products (if you own a home), balance transfer cards, and personal loans.

Here are four reasons you might consider a debt consolidation loan to help you deal with your high-interest debt.

If you want to consolidate debt, Credible makes it easy for you View your prequalified personal loan rates from different lenders, all in one place.

What is Debt Consolidation?

Before we dive into the reasons why a debt consolidation loan makes sense, let’s define what it is. Debt consolidation brings multiple debts into a single account with one easy-to-manage payment. It’s a strategy you can use to simplify the debt-payment process and potentially save you some money on interest. If you’re overwhelmed with debt, debt consolidation can be a smart move.

While you can consolidate debt in a variety of ways, one of the most popular is a personal loan for debt consolidation. With a Debt Consolidation Loan, take out a new loan to pay off one or more pre-existing unsecured debts. You get one manageable monthly payment, so you don’t have to worry about juggling multiple debts, interest rates, and due dates.

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It’s important to understand that while a debt consolidation loan can treat the symptoms of your financial problems, it won’t address the root cause. Think of it as a tool that gives you some breathing room so you can get back on your feet and map out a long-term plan for a brighter financial future.

ADVANTAGES AND DISADVANTAGES OF DEBT CONSOLIDATION

1. Reduce the overall cost of your debt

A private loan can help you lower your debt costs in two ways. Being able to set a lower interest rate than the interest rates you currently have on all of your debt can save you hundreds or even thousands of dollars in interest.

Also, a personal loan gives you a clear end date for paying off your debt. This can help you focus on your goals and pay off your debt sooner.

Visit credible Compare personal loan rates from different lenders without affecting your credit score.

2. Refinance your debt without risking your home or other assets

While home equity products – like home loan and Home Equity Lines of Credit (HELOCs) – can come with lower interest rates than personal loans, but they have some disadvantages to consider:

  • Build your equity – Because a home equity loan relies on the value you’ve built in your home, if home values ​​fall, you could find yourself under water on your mortgage and owing more than your property is worth. This could be a serious problem if you are planning to move house soon.
  • Put your home at risk – A home equity loan puts your home up as collateral. If you fail to make your payments, you could lose your home in the foreclosure process.
  • May not qualify — Most lenders won’t give you one Home equity loan or HELOC unless you have some equity in your home. Your equity is the difference between your mortgage and the current value of your home. While each lender has their own set of criteria, most will look for at least 15% equity.
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A debt consolidation loan, on the other hand, requires no collateral, which means you don’t have to put your home, car, or other assets at risk. You can also secure a lower interest rate than you could with a credit card.

Your rate will likely be fixed and not variable (as would be the case with many HELOCs), allowing you to plan your payments in advance. And if yes good or excellent creditworthinessit may be easier to qualify for a debt consolidation loan than a home equity product.

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3. Lower your monthly payments

If you have a lot of high-interest credit card debt and take out a personal loan with a lower interest rate, you may be able to reduce your monthly payment amount. This can free up your cash flow and give you more money to use for yourself emergency fund and other financial goals, such as saving for a house or retirement.

Choosing a longer-term personal loan can also result in lower monthly payments. However, keep in mind that you will pay more interest over time this way.

4. Simplify your debt

When you’re juggling multiple loans and credit cards, it’s easy to miss a bill payment. Missing even one payment can drain your balance.

A debt consolidation loan allows you to combine multiple monthly payments into a single loan at a fixed rate. That can do that debt settlement much more manageable to process and reduce the risk of missed payments. Many personal lenders also offer discounts for setting up automatic payments that ensure your monthly loan payments are on time.

When you’re ready to apply for a debt consolidation loan, Credible can help you quickly and easily Compare personal loanss to find one that best suits your needs.



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