Debt consolidation loans are commonly used to help consumers better manage their credit card debt, and they may also be used to pay for medical expenses and other similar types of debt. Debt can be a major hindrance to achieving financial health, stability and security. The average consumer in the United States carries approximately $7,000 in unsecured debt. If you are stressed about the amount of debt you are responsible for and are looking for a better way to manage and reduce that debt, you may be wondering if applying for a consolidation loan is a good option to consider. With a closer look at debt consolidation loans, you can determine if this is the best financial move to make to improve your situation.
The Benefits of a Personal Loan Versus a Credit Card
There is no single right way to handle your debt situation. Each person has a unique debt issue with variances in debt balances, types of debt, interest rates and even the ability to repay the debts. In some cases, using a balance transfer offer on a credit card is a great idea. Some credit cards, for example, have a zero percent interest rate on balance transfers within the first few months or longer. However, the rate on the outstanding balance can escalate if the balance is not repaid in full by the rate expiration date. In addition, there may be costly balance transfer fees that will increase the total amount of your debt. A credit card also has a revolving term rather than a fixed term, and it is harder to reduce balances with a revolving term. A personal loan often has an attractive interest rate and a fixed term. The loan amount may be sufficient to roll all of your outstanding debts into a single account. This may provide you with a complete debt elimination strategy and more manageable debt payments throughout the life of the loan.
How to Determine If a Personal Loan is Right For Your Needs
There are a few steps you should take to determine if a personal loan is the best financial option for you. Make a list of all of your outstanding debts, including medical bills and other vendors who you owe money to. Include monthly payments, outstanding balances and interest charges on each debt. Add up the totals for monthly payments and outstanding debt balances. Then, look for a loan that can be used for debt consolidation. Ideally, a consolidation loan will have a fixed term and will have a lower interest rate than your debts currently have. You can use a loan payment calculator to estimate your monthly debt payment. In many cases, you will see that your total debt payment decreases with a fixed term consolidation loan. However, in some cases, you may realize that you do not qualify for a consolidation loan. For example, your credit rating may be too low to qualify for the loan amount you need. If this is the case, other debt relief options should be considered.
Shopping for the Best Consolidation Loan
If you have moderately good to excellent credit despite having high debt balances, you may be an ideal candidate for a consolidation loan, and you may qualify for great terms. Many banks and credit unions offer personal loans that can be used for consolidation purposes. Some individuals also use home equity loans for debt consolidation. As you compare programs available to you, look for a loan that offers you the most beneficial loan amount and that has the lowest rate. In addition, look for a term length that generates affordable monthly payments. All factors should be reviewed together, and the monthly payment should be comfortable for your budget.
Debt can make it difficult to achieve your financial goals, such as increasing savings balances and preparing for retirement. A debt consolidation loan is an excellent option to consider if you want to set up a firm debt elimination schedule, reduce your payments or otherwise improve your debt situation. Before you proceed with debt consolidation, however, it is important to determine if this would be a helpful move to make and to explore the loan programs available for consolidation. Through this initial effort, you can better determine the right course of action.