However, when using a personal loan for debt consolidation, the lender can make a direct payment to lenders who have their other debts. Then, you'll only be responsible for paying off the new personal loan with a fixed monthly payment and a new interest rate. In a nutshell, yes, you can combine the full amount of multiple loans into a single loan. And having to worry about just one monthly payment can make all the difference in your budget.
Plus, you may be able to save money by getting a lower interest rate. A debt consolidation loan is a personal loan that is used to pay (or cancel) other debts. By using one loan to pay others, you consolidate several bills into one. A big problem with credit cards is that if you keep using them to make purchases, you may never pay off your debt.
Before you apply, look for at least three lenders to ensure you get a loan with the best terms available. However, if you need to make a major repair or home improvement, you may want to compare using a personal loan with a home equity loan or line of credit for this purpose. In the long term, any impact on your credit rating (positive or negative) will be determined by the method you use to consolidate your debt and whether you make your payments on time. Your debt consolidation service can also offer alternative payment plans that make your monthly bill more affordable.
However, debt consolidation is often advertised as a potential way to use those types of accounts, rather than an alternative name for the loan or line of credit itself. In addition, you'll likely have a fixed interest rate on your new loan, which can make your payment amounts more predictable than the variable interest rate you normally have for credit card debt. If you apply for a loan or open a new credit card, you'll need to check your credit report carefully, which can temporarily lower your score. After meeting with a credit counselor to discuss your debt and your options, you may be able to enroll in a DMP and the counselor will contact your credit card issuers to try to negotiate better payment terms, such as lower interest rates and fee waivers.
You receive the full amount of the loan up front and then repay it with periodic (often monthly) installment payments over a predetermined repayment period. If you think you can pay off your debt in less than two years and you have good credit, you can choose a credit card with a balance transfer with an annual percentage rate (APR) of 0%. Read on to learn about the potential advantages and disadvantages of a personal loan for debt consolidation, as well as possible alternatives. The opportunities available to you really depend on the type of loans you have and the repayment terms of your loan.
So, consolidating your credit card debt with a personal loan can save you money in interest and potentially help you get out of debt faster. If you have so many debts that it seems mathematically impossible for you to pay them off throughout your life, you could also be a candidate for bankruptcy. If there's a possible match, you can view loan offers, rates and monthly payments without affecting your credit score.