If you are searching for ways to lower your monthly debt payments, then the obvious solution you have probably considered is debt consolidation loans. By taking out a personal loan with a low interest rate and then paying off the high interest credit cards or loans, the monthly payment should go down. Understanding how consolidation loans work is the key to getting the best rates.
Taking out a personal loan has a few potential options available. It is possible to use a traditional lending institution or to opt for a peer-to-peer lending option. Both solutions will offer loans, but the requirements for funding vary.
A traditional lending institution, like a bank or credit union, will have very strict requirements for personal loan applications. Consumers will need to undergo a credit check and must provide information about current income levels. The problem many individuals face is either a denial due to a high debt to income ratio or a higher interest rate than expected.
Traditional lending institutions often have high interest rates on personal loans or consolidation loans. If you are already struggling with debt payments, then you are unlikely to meet the strict credit rating standards a bank requires to get the best possible rates.
Peer-to-peer lending is another option for that personal consolidation loan. In peer-to-peer lending, you ask for a loan with a preferred interest rate. An investor for peer-to-peer loans will ask for a credit score and will decide if he or she wants to invest in a loan based on the possible risk of default. In many cases, you will end up denied or the investor will require a much higher interest rate.
Peer-to-peer lenders might offer loans when traditional institutions do not, but the cost is generally higher than you might expect. Depending on your credit rating and historical data, you might end up paying as much as 35 percent interest, which is too costly if you are trying to reduce interest rates.
Unless you have an excellent credit score of 720 and up, you can put aside the thought of consolidating your debts with a loan. Let us look at another option that may be better for your financial situation. It’s similar to consolidation but without adding to your debt levels.
Alternative Consolidation Methods:
If you are fighting with debts, then it is unlikely that you will qualify for a personal loan that has a lower interest rate than your current credit cards or other loans. Consolidation loans are not inexpensive, but alternatives are available that can get your debts in order without the unreasonable costs.
Hiring a debt relief service that offers a settlement program may be a better debt solution. The credit consolidation firm starts with looking over the current financial situation and then determines the possible options available for individual needs.
Upon determining the situation, the professionals working in the company will offer advice regarding debt relief options that can help reduce debts. Settling the debts will help pay off the current loans.
A myth about settlement is that it will harm credit ratings and is as bad as bankruptcy. While it will temporarily impact credit scores, consumers are able to immediately begin rebuilding the credit rating. As a result, it is only a temporary change.
Settlement does not have the long-term implications of filing for bankruptcy. If you file for bankruptcy, then your credit history will show it for the next ten years. Furthermore, bankruptcy can sometimes reduce the job opportunities as employers run a credit check.
Settling the account takes around 24 to 48 months, depending on the ability to save the lump sum of cash and the lender’s cooperation. After you make a single payment, the debt is considered paid.
Finding the Companies:
A consolidation and settlement service company requires a little planning to find the best option for individual needs.
After you discuss the situation with the company, you will know if it is the right option for your needs. There are companies that will not charge any fees or expenses until after providing a service. If you need several services, then payments are made when a service is completed and you start seeing results – your debts reduced.
You do not need to seek out an expensive personal loan to consolidation debts. Using a consolidation and settlement service can help you eliminate your high interest debts without the stress of taking out new loans