Debt consolidation loans can help simplify debt repayment by reducing the number of bills you pay each month. However, they’re only worthwhile if you can find a lender with interest rates and loan terms better than what you pay on your credit cards. That’s why it’s important to compare lenders and their rates using our rate tools before submitting a full application that will ding your credit score.
Some of the best debt consolidation loans come from online lenders that offer competitive fixed rates, flexible loan terms and a variety of lending options. They may also feature perks such as direct payment to creditors, no co-signer option and the ability to pre-qualify with a soft credit pull without impacting your score.
Navigating the World of Debt Consolidation Loans: Tips for a Smoother Financial Journey
A debt consolidation loan could improve your credit mix, which accounts for 10% of your FICO score, by lowering the percentage of your debt that’s carrying high interest rates. You can use a debt-to-income ratio calculator to see how much of your current debt would qualify for the lowest rate possible before applying.
It’s also worth mentioning that debt consolidation may not make financial sense for everyone, especially if you’re unable to save enough money to pay off the loan in less than five years. In that case, other strategies such as a budgeting plan and cutting spending might be more effective. Also, remember that a debt consolidation loan can only fix your existing balances. It won’t address the reasons you fell behind on your spending habits or prevent you from getting into debt again in the future.