Less than perfect credit, burdensome amounts of debt, or a recent denial from acquiring a loan might help in meeting the criteria for debt consolidation relief without loans. Programs such as debt management could be a good fit for getting your finances under control, without requiring the need of an approval for a new loan. On the other hand, obtaining loans for consolidating debt is slightly more difficult since personal loans, especially unsecured, usually require a good to excellent credit history and are completely dependent upon the lenders qualifications. Secured loans however, like home and auto loans, require you to put up a certain sum of collateral to guarantee the loans repayment. If you have experienced some late payments, or you just have too high of an amount of debt to be able to fit it into a loan, you may want to include a non-loan option into your considerations.
What is Debt Consolidation?
This is the practice of consolidating multiple bills, typically unsecured debts, but not always, and payments into a single payment, usually through some form of debt management or counseling, home equity or mortgage refinance, or personal loan program. On this page, we will briefly discuss debt management, loans and using a credit card for consolidation through a balance transfer.
Consolidation of Bills without a Loan
Want a consolidation without qualifying for a loan because of less than a perfect credit history.
Loans for Debt Consolidation
Primarily interested in applying for a loan to consolidate credit card debts, here is your opportunity.
Expand and learn more about basic borrower requirements at Lending Club (Not available in all states).
Using Loans for Debt Consolidation
In the form of a loan consolidation, this generally results in a longer repayment term and thus a lower required monthly payment. Offered interest rates for consolidation loans can vary based upon a number of factors, including your credit history. Also important is if the type of debt being changed by the consolidation. For example, unsecured debt (i.e. credit cards and most personal loans) being consolidated into secured debt, such as home equity and auto loans would generally, but not always, result in a reduction in interest rate. When consolidations include a mortgage loan, they are frequently included in the refinancing of a first mortgage or the establishment of a second mortgage or home equity loan to allow a consumer, to take advantage of the available equity in their home. Even though you may not actually receive any of the loan proceeds, commonly referred to as a cash-out loan, because you are paying off debt in addition to the principal balance of your existing mortgage.
Using Debt Management / Credit Counseling to Consolidate
Organizations offering these programs, attempt to help a consumer by obtaining better rates on managed debt, getting penalty fees waived, and helping them manage their budget so that they can start to work their way out of debt. Unlike using credit cards and debt consolidation loans, however, the consolidated debts will not get a new extension of credit for payoff. The consumer makes one monthly payment to the credit counseling firm, and the firm distributes payments out to the creditors.
Using a Credit Card for Consolidation via Balance Transfer
As far as utilizing a balance transfer offer for consolidating credit card debt, keep in mind that they are typically just teaser rates. The promotion for a new card at a significantly lower interest rate is usually for a shorter period, such as six months to a year. Before utilizing this method, be sure to read the fine print to determine what the resulting interest rate and the corresponding monthly payment will be. However, credit card companies offering lower interest rates on balance transfers that last for the life of the balance are often available, as well.
Potential Benefits and the Risks
1) Potentially lower rates and payments, but dependent upon the type of consolidation and the term set to pay it off. 2) Get out of debt quicker, but dependent upon the same factors as the item 1 benefits. 3) Getting organized and in control, although this benefit is not necessarily financial or tangible in nature, it is good practice. Better organization of your finances reduces stress and having multiple credit cards with high balances and different due dates can become very overwhelming. Consolidating many smaller payments into a single payment will make everything a lot easier to manage and consolidation of your debts can get you back on track to a secure financial future.
Consolidating your debt will do absolutely no good if you think the resulting lower payments are a license to go shopping and you will only make your financial situation worse. If you do decide to consolidate your bills, use your newfound breathing room to create a safety net for yourself by putting away a little extra each month by opening a savings account at your local bank and placing money in it on payday. Better yet, see if your bank will do an auto-deduction from your paycheck in order to keep you on track. When an emergency comes up, or you feel that impulse buy coming on, keep the credit card in your wallet and use the money you have already saved!
Using a credit counseling service may not affect your credit score, but your current creditors will add it to your credit record and this credit report addition is surely noticeable by anyone underwriting you for an extension of credit. Credit counseling services can definitely help, but you should consider entering into them only after exhausting all your other options.