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Getting out of debt is normally a a lot more durable factor to do than getting into debt, particularly if you find yourself with a big steadiness and a excessive rate of interest which makes it really feel prefer it’ll take over a decade to repay. Because of this, many individuals flip to debt consolidation loans to assist repay their steadiness sooner.
There are a lot of benefits — in addition to a couple of caveats — to bear in mind should you’re contemplating consolidating your debt. After all, everybody’s scenario is totally different so it is best to at all times double verify with a monetary advisor to make sure your distinctive private wants are being met earlier than making your subsequent transfer.
Beneath, Choose breaks down a couple of circumstances that point out when consolidating your debt can be a superb step so that you can take.
You’ve gotten a number of month-to-month debt funds
Consolidation fairly actually means combining a number of issues right into a single extra coherent complete — debt consolidation, therefore, is the process of taking multiple monthly debt payments and replacing them with one monthly payment.
If you have several major bills that need to be paid monthly, consider this the first sign that debt consolidation could be a good next step for you. Consolidating multiple payments into just one can help you feel more financially organized and less stressed about having to divvy up your paycheck to pay them off.
Let’s say you take out a debt consolidation loan — that means you would apply for a specific amount of money and once approved, the lender would send the funds to your creditors and pay off those balances. In other words, the only monthly payment you’d be making is for the loan itself.
Some personal loan lenders, like Payoff, for example, offer personal loans as low as $5,000 and as high as $40,000 that are meant exclusively for consolidating your debt.
Other lenders make the debt consolidation process as easy as possible by allowing you to send the funds directly to your credit card companies — most personal loan lenders will instead deposit the funds into your checking account so you can use the money as needed.
Marcus by Goldman Sachs personal loans, for instance, let borrowers send funds directly to as many as 10 creditors for debt consolidation. You’ll just need to provide the creditors’ names, addresses, account numbers and the amount of money you’d like sent to each, and from there, you’d only have to make monthly payments toward the debt consolidation loan.
Payoff Personal Loans
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Annual Percentage Rate (APR)
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Loan purpose
Debt consolidation/refinancing
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Loan amounts
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Terms
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Credit needed
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Origination fee
0% to 5% (based on credit score and application)
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Early payoff penalty
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Late fee
5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)
Marcus by Goldman Sachs Personal Loans
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Annual Percentage Rate (APR)
6.99% to 19.99% APR when you sign up for autopay
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Loan purpose
Debt consolidation, home improvement, wedding, moving and relocation or vacation
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Loan amounts
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Terms
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Credit needed
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Origination fee
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Early payoff penalty
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Late fee
Your debts carry high interest rates
One major advantage of debt consolidation is the potential to receive a lower interest rate, which may help you save you hundreds or even thousands of dollars in the long run.
While the new interest rate you receive may not always be drastically lower than your current rate, some savings are still better than none at all. A small percentage change coupled with only having to make one monthly payment can help you save money and feel like you’re a little more in control of your finances.
If you’re afraid you won’t qualify for a low enough interest rate after consolidating your debt, you might instead want to consider using a 0% APR balance transfer card, which would allow you to transfer the balance of one or more credit cards that do have high interest rates onto one credit card with an introductory period where no interest is charged. Most balance transfer cards will charge a fee for each transfer, however.
From there, the goal is to pay down as much of your balance as possible since you won’t have to worry about interest charges building up during that introductory period. The Citi® Double Cash Card allows you to complete a balance transfer from the date of first transfer and make monthly payments at an introductory 0% APR for the first 18 months (14.24% – 24.24% APR variable after). Alternatively, the Citi Simplicity® Card lets you make payments at 0% interest with an intro APR for 21 months after you complete your first balance transfer (14.99% – 24.99% variable after). For both cards, balance transfers must be completed within 4 months of account opening.
Citi® Double Cash Card
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Rewards
2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill
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Welcome bonus
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Annual fee
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Intro APR
0% for the first 18 months on balance transfers; N/A for purchases
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Regular APR
14.24% – 24.24% variable on purchases and balance transfers
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Balance transfer fee
For balance transfers completed within 4 months of account opening, an intro balance transfer fee of 3% of each transfer ($5 minimum) applies; after that, a balance transfer fee of 5% of each transfer ($5 minimum) applies
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Foreign transaction fee
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Credit needed
Citi Simplicity® Card
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Rewards
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Welcome bonus
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Annual fee
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Intro APR
0% for 21 months on balance transfers; 0% for 12 months on purchases
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Regular APR
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Balance transfer fee
5% of each balance transfer; $5 minimum
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Foreign transaction fee
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Credit needed
You already have a good credit score
It’s important to make sure your credit score is in good standing before you apply for a debt consolidation loan because the new interest rate you receive will largely depend on your credit score and credit report. Generally, a higher credit score will allow you to qualify for lower interest rates, while a lower credit score will land you higher interest rates.
While there are personal loan and debt consolidation lenders that do accept applicants with less than ideal credit scores, you still run the risk of getting hit with a slightly higher interest rate if your credit score is on the lower end.
Before you apply for a debt consolidation product, double check your credit score. You can use Experian to view it for free and check your credit report so you know exactly what’s on there and can look into anything else that might be affecting your chances.
Experian Dark Web Scan + Credit Monitoring
On Experian’s secure site
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Cost
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Credit bureaus monitored
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Credit scoring model used
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Dark web scan
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Identity insurance
You have a plan to stay out of debt
While consolidating your debt may help you to pay it off faster, it won’t necessarily keep you out of the debt cycle. Shortly after becoming debt-free, many borrowers find themselves falling back into unhealthy habits and eventually, accruing more debt. Or, while paying down their consolidation loan, they might continue to overspend on the credit cards they’re using the loan to pay off, which means they’re now stuck paying back the loan and making monthly payments on a high interest credit card all over again.
Debt consolidation itself is just another tool meant to help alleviate multiple high interest monthly payments. It’s important to figure out what causes you to go into debt in the first place so you can avoid repeating those financial patterns in the future. By becoming aware of this and creating a plan to keep yourself on track, you’ll be more likely to have the most successful debt consolidation experience possible.
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Editorial Notice: Opinions, analyses, opinions or suggestions expressed on this article are these of the Choose editorial workers’s alone, and haven’t been reviewed, accepted or in any other case endorsed by any third celebration.