A consolidation loan is a personal loan you use to pay off multiple debts, often credit card balances. It can help you reduce your debt repayment time and pay off the balance more quickly. However, it’s important to know what you’re getting into before applying for this type of loan.
You’ll need to meet certain criteria to qualify for a debt consolidation loan, including an acceptable credit score and income levels. If you have good to excellent credit, you may have more loan options and better rates than borrowers with fair or bad credit scores (689 or lower). You’ll also want to make sure your budget can support a single monthly payment before you apply for a debt consolidation loan.
Mastering Your Finances: A Guide to the Benefits of Consolidation Loans
Debt consolidation loans typically come with a higher interest rate than the credit card balances you’re paying off, so you could end up spending more on the loan overall if you’re not careful. You’ll also need to make sure you’re able to commit to making your monthly debt consolidation loan payments on time to avoid any issues with late fees and damage to your credit scores.
Before you choose a lender to borrow from, check their loan terms and rates online. Many lenders let you prequalify for a loan without affecting your credit scores, so you can see what your potential cost and payment structure might look like before you apply. If you’re shopping with several lenders, try to submit your applications within a 14-day period to minimize the impact on your credit scores.