Warning: Late repayment can cause you serious money problems. For help, go to MyMoney.gov. We are a broker, NOT a lender.
Warning: Late repayment can cause you serious money problems. For help, go to MyMoney.gov. We are a broker, NOT a lender.
If managing multiple debts has become overwhelming, personal loans for debt consolidation may be a smart solution. These loans help you streamline your finances by combining multiple debts into a single monthly payment. In this guide, we explain how debt consolidation loans work, who they are best suited for, and what to look for when comparing rates and offers.
A debt consolidation loan is a type of personal loan used to pay off high interest debts like credit cards, payday loans, or store financing. Once your existing debts are paid off, you only have to make one fixed monthly repayment on the new loan.
Key benefits:
When you apply for a personal loan for debt consolidation, the lender will review your financial profile to determine if you qualify. Once approved, you receive a lump sum which you use to pay off your existing creditors.
The loan then replaces those debts, and you repay it over a fixed term with an agreed interest rate.
To be eligible, lenders typically assess:
If you're unsure what credit score is needed for personal loan approval, most lenders look for a minimum score of around 600. However, some lenders cater to borrowers with fair or poor credit.
You can explore your current credit score range using free tools from Credit Karma, Experian, or NerdWallet.
You may benefit from a personal loan for debt consolidation if you:
Debt consolidation is especially useful if your new loan offers a lower personal loans rate than your existing credit cards. You can compare lenders and estimate potential savings using rate comparison platforms like LendingTree or Bankrate.
Your credit score significantly affects your eligibility and interest rate.
Excellent Credit (750 and up):
Good Credit (700 to 749):
Fair Credit (640 to 699):
Poor Credit (under 640):
Many credit unions and online lenders specialize in loans for fair credit. Navy Federal Credit Union, for example, is known for working with members who have less than perfect scores. You can learn more about their personal loan offerings here.
Pros
Cons
Before applying, check if your loan includes prepayment penalties or fees. These can reduce the savings from consolidating.
When comparing personal loans rates, focus on the following:
A helpful guide on choosing the right loan structure is available at MoneyUnder30.
It depends on your financial profile. Alternatives include:
Debt consolidation through a personal loan is often the best option if you want to avoid new revolving credit and lock in a structured repayment plan.
Personal loans for debt consolidation can be a powerful tool to reduce stress, save money on interest, and finally become debt free.
Before committing:
Whether you choose to consolidate through a bank, credit union, or online platform, a structured approach helps you stay in control.
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