Is a Debt Consolidation Loan Right for Me?
A debt consolidation loan (DCL) consolidates multiple debts into one single loan, typically resulting in a lower interest rate and monthly payment. A DCL provides the dual benefit of streamlining the repayment process while simultaneously lowering interest expense and the total amount repaid over time.
Types of DCLs include personal loans, promotional low-interest rate credit card balance transfers, home equity loans and student loan consolidations. DCLs are popular for the convenience and debt savings that they provide, but they’re not for everyone. Is a debt consolidation loan right for you? Let’s take a closer look.
Debt Consolidation Loans
Debt consolidation fixed-rate loans are available through banks, credit unions, and online lending sites – however, those individuals with excellent credit scores of 700 or higher should investigate debt consolidation through promotional zero percent interest rate balance transfer offers on credit cards.
Though these low introductory rates often expire within twelve to eighteen months and usually come with balance transfer fees of 3-4%, every dollar paid on them applies toward reducing a debt balance. Ideally, the amount of debt requiring consolidation will fit within the credit limits of such a promotional offer and be paid in full prior to the introductory rate adjusting upwards.
However, in those scenarios when a greater amount of debt requires consolidation or when an individual’s credit score isn’t strong enough to qualify for a promotional offer, a fixed-rate DCL from a bank, credit union, or online lender can make sense.
Debt Consolidation - Things to Know
Debt consolidation requires organization, patience, time and money. Organization means taking the time to Itemize all bills – credit card, medical, utility, and any other unsecured debt, and to total all necessary expenses – rent, groceries, transportation, etc.
Before determining the amount remaining that can be allocated toward a single monthly payment on a DCL. In a debt consolidation loan scenario, the debtor borrows enough funds to first pay off all unsecured debts (credit cards, medical bills, some student loans), thereby simplifying multiple monthly payments into one single monthly payment at an overall lower blended interest rate.
However, it is important to know in advance whether your cash flow is sufficient enough to cover the cost of the monthly payment on a fixed rate DCL. As a rule, the total amount of your debt should not exceed 50% of your annual income – otherwise it could make better sense to pursue alternate forms of debt relief that include debt settlement, a debt management plan, or even bankruptcy.
Conversely, if the total amount of your unsecured debt is low enough that it can be effectively paid off within twelve months, it’s likely better to simply stay the course and not pursue debt consolidation. However, if you do wind up pursuing debt consolidation, savings achieved through a DCL offer the advantage of being non-taxable – as opposed to any debt savings of over $600 achieved through debt settlement that is taxable as ordinary income.
It is also important to know that DCLs can result in longer repayment schedules, depending upon the reduced size of the monthly payment.
Spending Habits Matter
It is vitally important for a debtor to adjust away from the poor spending habits that led to accumulating debt in the first place – otherwise any debt consolidation loan won’t really work in the long-run. Old habits die hard – and spending habits are no different.
It is important to recognize whether you are the type of individual who can exercise the self-discipline necessary to curb extra spending on restaurants, high-end clothing, sporting events and other luxuries that simply need to be avoided until your debt problem is relieved.
If you lack this self-discipline, think twice about debt consolidation. DCLs are good in that they provide a timeline and a pathway out of debt – but only when the individual behaves responsibly.
However, if you’re the type of person who can adjust, live frugally for a while acting responsibly, a debt consolidation loan can be right for you. Furthermore, debt consolidation loans are not necessarily bad for a credit score – on the contrary, they can be good for a credit score when a debtor makes regular, timely payments against the DCL.
However, any late or missed payments will quickly cause harm to a credit score and profile. Nonetheless, the potential benefits of debt consolidation do outweigh the potential negatives, so if you’re looking to simplify the repayment process on several unsecured debts while saving money on interest expense over the long-term. a debt consolidation loan could indeed be right for you.
Professional and focused on facts and truth not hype. Excellent. We want to know facts.
Great work very professional and great updates. Communication is excellent.
Excellent. Also each time i call there they treat me with respect even though they are probably thinking jerk . You sure have made mess of your life. but they have been taught to smile smile smile. this...
Scott W O'Neill
Thanks for all your help and negotiations.
Thanks for the update! I have faith in you guys and will continue my payments. Thanks for all your help and negotiations.
That A Settlement Was Entered.
I Absolutely Love You All At United Settlements. You All Have Saved My Credit Solutions. I Would Refer Everyone To You Services.
Mildred Yvonne Sherron
The results of the settlement attempts.
So far, I have found United Settlement more than satisfactory. Very conscientious and very efficient in providing a service in debt settlement. Thank you and all the members of your team who are assisting...
Tough Financial Hard Times During Covid-19
I signed up with United Debt Settlement because of large credit card debts, which had taken a financial toll on my credit. UDS has an outstanding reputation assisting clients like me achieve financial recovery...
No hassle service
Quick fast and no hassle
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...