How does debt consolidation work? It can feel like you’re using a bucket to rescue a boat from water when you’re trying pay off your debt. This is not a common feeling.
The average U.S. household has $7281 in credit card debt . The average balance they have is $15,609. You don’t need to drown in debt. Consolidating your debt can be one of many strategies.
Consolidating your debt can reduce stress and avoid multiple payments. You only need to make one monthly repayment for the loan term. The loan provides funds to pay off your debts.
Consolidating debt is about paying less interest, or getting out of high-interest debt faster than if you had stayed with multiple lenders. This will give you some peace of mind and help you to reduce your monthly payments. Where should you consolidate credit cards, car payments and student loans?
“The most costly debt (the one with the highest interest rate) should be tackled first,” Louis Cannataro founder of Cannataro Park Avenue Finance. Then, look into loans that have interest rates that could rise.
This is like glass on a beach… an accident waiting for to happen, especially in an environment in which rates are more likely to rise than fall. Remember that some home loans are tax-deductible which can reduce the net interest cost slightly.
There are three types of debt consolidation loans
Home equity loans and credit lines: Homeowners have the option to take out a loan. This can be either a second mortgage, or a cash-out refinance for a first mortgage.
This type of loan is secured, meaning your house is the collateral. You can get lower interest rates and more flexible repayment terms than other products. Payday Champion offers a fixed, low interest loan with no application fees, origination fees, or cash requirements at closing.
You may also be able to draw the cash you need at your convenience with a home equity loan of credit (HELOC). This is a revolving loan that function similarly as a credit card but has a variable interest rate can change over the term.
Unsecured personal loans
Balance transfer credit cards: These credit cards consolidate debt and offer a single credit card with a low introductory rate. These cards often switch to higher APRs after the initial period. This is not a good option for anyone trying to get rid of high-interest debt. Be aware of any associated fees.
How to create a debt consolidation plan
Here are some ways debt consolidation can help you manage your debt.
1. Your monthly payments are reduced
You can choose terms that suit you with a consolidation loan. You may be able to choose a longer repayment term, which could result in lower monthly payments and an interest that is lower than the current rate. These terms will give you control over how long you are in debt.
2. Reduces your interest charges/rates
Look for a debt consolidation program with a lower interest than what you currently pay on your debts. This will reduce the interest you pay over the life of your debts, which can save you significant money.
3. This may help you improve your credit score
Credit utilization rate (or your debt-to-credit ratio) can have an impact on your credit score. You may be able to consolidate your debt faster, which can improve your credit score.
4. It simplifies your bill payment
Consolidating your debt reduces the time it takes to pay your bills each month. Instead of making multiple payments on different days, there is only one payment. This reduces stress and can help to improve your credit score.
How to apply for a consolidation loan
Are you ready to apply for a consolidation loan? These are the next steps.
How to Apply for a Home Equity Loan/HELOC
Online applications are the most common way to apply for home equity loans. The online application for Payday Champion takes less than five minutes. The general loan process is as follows:
- Complete the preliminary form to provide information about you and your home.
- Your lender will check your credit score and your debt-to-income ratio.
- Documents to support your property and financial information will be required. These documents include income statements, mortgage statements, homeowners insurance declarations, and photo ID.
- The lender’s underwriting and processing teams will then begin their appraisals.
- After the lender approves your loan, you will schedule a closing so that you can sign your documents and receive your credit line or loan funds. Payday Champion is one of these lenders. They will pay your creditors directly, so you don’t need to send individual payments.
How to apply for an unsecured personal loan consolidation loan
It takes approximately one to seven business days to disperse funds for an unsecured consolidation loan.
- Complete prequalification application online or by telephone.
- This information will allow the lender to determine the interest rate and term they can offer you.
- If you accept the loan, the lender will verify your identity as well as credit information.
- Direct payment by the lender to creditors ensures that the loan is not viewed as new debt but rather transferred debt.
My Name is Jay has and I have a passion for financial writing. I am the chief writer on this blog. I do my best to verify all the information but if there is anything amiss please let me know and I will do my best to correct it.