Why is it so hard to consolidate debt?
As already discussed, there are three major reasons why people are denied debt consolidation loans. They don't make enough money to keep up with the payments; they have too much debt to get the loan, or their credit score was too low to qualify.
Insufficient credit history or poor payment history can also lead to a denial of a debt consolidation loan. Remember, your payment history is the most important factor in your credit score, comprising 35% of your FICO® Score. Even one missed payment can damage your score.
Insufficient income, a high debt-to-income ratio, and a poor credit score are just some of the many reasons why a debt consolidation loan application may be rejected. Each lender has different eligibility criteria and takes different factors into account – and some specialise in helping customers with bad credit.
You'll typically need a credit score of at least 700 to qualify for a debt consolidation loan with a competitive interest rate. Although a lower credit score doesn't automatically equal a denial, as some lenders offer loans for bad credit, the borrowing costs will likely be higher.
- Balance transfer credit card. The best balance transfer cards often come with zero interest or a very low interest rate for an introductory period of up to 18 months. ...
- Home equity loan or home equity line of credit (HELOC) ...
- Debt consolidation loan. ...
- Peer-to-peer loan. ...
- Debt management plan.
Working with a loan officer, credit counselor or on your own, gather all the debts you want to combine into one payment. From there, a plan or loan is set in place for you to make your monthly payment to one location, making it easier to remember your due date, along with hopefully having a lower APR to pay.
Borrowers need good credit and a low DTI to qualify for low enough interest rates to make debt consolidation worthwhile. It's also important to note that debt consolidation is not a cure-all; it does not solve the problem of taking on unwieldy amounts of debt.
Generally, borrowers with scores of 740 or higher will receive the best interest rates, followed by those in the 739 to 670 range. If your credit score is lower than 670, debt consolidation may not be a good option for you.
Success with a consolidation strategy requires the following: Your monthly debt payments (including your rent or mortgage) don't exceed 50% of your monthly gross income.
Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.
What is the best debt consolidation company?
- SoFi: Best for fast funding.
- Upgrade: Best for poor or thin credit.
- Achieve: Best for quick approval decisions.
- LendingClub: Best for co-borrowers.
- Discover: Best for excellent credit.
- Happy Money: Best for credit card consolidation.
- LightStream: Best for large loans.
While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds. The biggest grant the government offers may be housing vouchers for those who qualify. The local housing authority pays the landlord directly.
National Debt Relief is a legitimate company providing debt relief services. The company was founded in 2009 and is a member of the American Association for Debt Resolution (AADR). It's certified by the International Association of Professional Debt Arbitrators (IAPDA), and is accredited by the BBB.
Freedom Debt Relief is an accredited debt settlement company based in Arizona that offers consumers a way to eliminate their debt by reducing what they owe.
- Review and revise your budget. ...
- Make more than the minimum payment each month. ...
- Target one debt at a time. ...
- Consolidate credit card debt. ...
- Contact your credit card provider.
For most people, a debt consolidation loan involves taking out a single loan that pays off your existing debts. This could work out cheaper if you're offered a lower rate of interest overall, when comparing it to your other debts' interest rates.
Debt consolidation is generally considered a less damaging option for your credit. It may be a better choice for those with good credit who can qualify for a lower interest rate.
- Take advantage of debt relief programs.
- Use a home equity loan to cut the cost of interest.
- Use a 401k loan.
- Take advantage of balance transfer credit cards with promotional interest rates.
You can consolidate debt by completing a balance transfer, taking out a debt consolidation loan, tapping into home equity or borrowing from your retirement. Additional options include a debt management plan or debt settlement, though these options may hurt your credit score.
If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.
Does consolidation hurt your credit?
It makes getting out of debt easier — and sometimes cheaper. That said, debt consolidation isn't a magic bullet. It can temporarily ding your credit scores or bring even more damage if you're not disciplined with your debt repayment.
- Filing for Bankruptcy. Filing for bankruptcy is a last resort option for many people drowning in debt, mostly because it gets a bad rap. ...
- Debt Consolidation. Consolidating debt is a very popular debt relief option. ...
- Debt Settlement. ...
- The Snowball Method. ...
- The Island Approach.
Debt consolidation works by combining all your debt (credit cards accounts, store accounts, personal loans, and payday loans into a single loan. Usually, this debt consolidation loan will have a longer loan term, which brings monthly instalments down, making them more affordable.
- Step 1: Stop taking on new debt. ...
- Step 2: Determine how much you owe. ...
- Step 3: Create a budget. ...
- Step 4: Pay off the smallest debts first. ...
- Step 5: Start tackling larger debts. ...
- Step 6: Look for ways to earn extra money. ...
- Step 7: Boost your credit scores.
Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.