Braidwood Capital has begun flooding the market with debt consolidation and credit card relief in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2019 Reviews, the personal finance review site, has been following Braidwood Capital, Tiffany Funding, Nickel Advisors, Coral Funding, Neon Funding, Ladder Advisors (also known as Carina Advisors, Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
A debt consolidation loan is a debt you take to use it for combining all your existing loans into a single loan and paying a single payment every month towards paying it off. It is one of the most recommended and highly adopted methods for debt elimination and will likely improve your financial health.
With a debt consolidation loan, the interest rate on the consolidated debt is usually lowered, and it allows you to pay off your debts much quicker and at a reduced cost. It also simplifies the process of paying multiple loans by turning them into one. You can manage your budget more conveniently when you only have one payment to keep track of.
The terms and interest rates of debt consolidation loans primarily rely on your credit history, especially your credit score. The higher your score, the more choices you’re presented with, in terms of lower interests.
Is a debt consolidation loan the right choice?
Debt consolidation is an excellent option for people who are drowning in high-interest debt that keeps building up. It is also a stepping stone towards paying off the debt entirely. A debt consolidation loan is the right choice only if you can qualify for one that offers a lower interest rate compared to the combined rate of all your individual debts. Additionally, the monthly payment also needs to be within the range that you can pay on-time throughout the term.
Another advantage of availing debt consolidation loans is that they mostly offer lower interest rates than credit card loans. Although its contingent on your credit score, it still allows you to manage your budget more efficiently as you’ll only have a single monthly debt payment to account for. For instance, according to the Federal Reserve, the interest rate on credit card loans was 15.09% on average during the first quarter of this year. Meanwhile, the interest rate was 9.63% on average for personal loans for the same term.
Debt consolidation loans are mostly installment-based, which implies that at the time of accepting the loan, you’re aware of the exact monthly payment that you’ll need to make and the length of time you’ll have to do this for. If you keep making your monthly payments on schedule, the terms and the rate will remain the same, and you won’t have to keep changing your budget around this loan. Moreover, contrary to credit card loans, debt consolidation loans don’t use revolving credit lines.
How does a debt consolidation loan affect my credit score?
Just like other types of credit, a debt settlement loanaffects your credit score when you sign up and as you continue to pay it off. At the time of applying for the loan, the lender would typically have the requirement of a hard pull on your credit report. It can result in losing a handful of credit points.
Moreover, if you’re taking this loan to pay off your credit card debt while continuing to build up the balance on the credit card, your credit score will get a blow.
However, if you successfully navigate the situation and the loan helps you manage your payments on time, then it will improve your credit score. On-time payments account for as much as 35% id your FICO credit score. In that case, sustaining a short-term drop in your score during the application process would be a sensible choice for long-term betterment.
How do I qualify for a debt consolidation loan?
The two major factors that determine your eligibility for a debt consolidation loan are your credit history and credit score. If you have a credit score ranging between good and excellent (above 690 on the FICO scale), along with a stable income, you’ll be eligible for the lowest interest rate on these loans, and many options to choose from.
On the other hand, if you have fair to bad credit (ranging between 300 and 689 on the FICO scale), you’ll be considered as a “risky” borrower and may only receive offers with high-interest rates and monthly payments.
If you want to know whether you qualify for a debt consolidation loan or not, you’ll have to go through the process of pre-qualification. One of the major advantages of this process is that it only requires a soft pull, but provides you with an idea of the rates and terms likely to be offered to you without damaging your credit score too much.
How do I receive a debt consolidation loan?
First, you’ll have to prepare a list of all your loans and monthly payments that you wish to consolidate. Then, you need to make sure that the loan offers that you’re getting provide enough amount to cover all your debts at a lower interest rate and monthly payment than the one you pay currently.
Be sure that this loan helps you and doesn’t cause further problems in the future. It should fit your budget, and you should be able to make the monthly payment well within it without putting you in more debt.
Confirm your credit score and think of the exact amount you’ll need in the loan and the interest rate that you prefer. Then, apply and compare offers from different lenders before deciding to take one. Make sure you check credit unions, online lenders, and banks for different offers and benefits.
Other options to pay off debt
Although debt consolidation is the most highly recommended option if you have good credit and can secure low-interest rates. However, there are other ways that you can use to pay off your debt. They are as follows:
- Refinancing your credit card loans with a 0% interest balance transfer card.
- Using a home equity loan, if you own a house.
- Using you 401(k) savings plan.
Conclusion
A debt consolidation loan is a great way to combine all your loans into one to make your debt more manageable. It also helps you pay off debts faster because these loans usually offer reduced interest rates as well as lower monthly payments.
