How to get a debt consolidation loan in 5 steps

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How to get a debt consolidation loan in five steps.

1. Check your credit history

Start by checking your creditworthiness. Borrowers with good to excellent credit ratings (690 to 850 FICO) are more likely to get approval and get a low interest rate.

Ideally, the new debt consolidation loan will have a lower interest rate than the combined interest rate on your other debts. A lower interest rate reduces the overall cost of your debt and can help you get out of debt faster.

Be ready for any loan application

NerdWallet tracks your credit score and shows you how to build it – for free.

If you have bad credit (300 to 629 FICO) and can take some time Build your credit, you may qualify for a lower interest rate loan. Here’s how:

  • Catch up on late payments. Late payments are reported to credit bureaus as 30 days overdue, which can lower your credit score by up to 100 points. If you’re within the 30-day window to make a debt payment, you still have time to submit it.

  • Check for errors on the credit report. Errors on your credit report, such as B. Payments on the wrong debts or accounts incorrectly marked as closed can hurt your score. Check your credit reports for free at AnnualCreditReport.com and dispute any errors you find.

  • Pay off small debts. Debt makes up 30% of your credit score. If you can, pay off all high-yield credit cards before you consolidate. This will improve your debt-to-income ratiowhich can help you get a lower interest rate on the consolidation loan.

2. List your debts and payments

Make a list of the debt you want to consolidate — credit cards, credit cards, payday loans, and other high-interest debt — and add up the total amount owed. You want your debt consolidation loan to cover the sum of that debt.

Add up the amount you pay on your debt each month and review your budget for spending adjustments needed to continue making debt payments. The new loan should have a lower interest rate and a monthly rate that fits your budget. Commit to a repayment plan that takes your budget into account.

Debt Consolidation Calculator

Use the Debt Consolidation Calculator check below if consolidation makes sense. After entering your debt, you’ll see typical interest rates from lenders and potential savings if you’ve consolidated at a lower rate.

Find a loan that suits you. Online lenders, credit unions, and banks offer personal loans for debt consolidation.

  • online lenders are aimed at borrowers of all credit classes. Most online lenders allow you to pre-qualify, so you can compare personalized interest rates and terms without affecting your credit score.

  • credit unions are non-profit organizations that may offer lower interest rates to borrowers with bad credit. You must become a member to apply for a loan, and many credit union loans require one pull hard with your application, which can temporarily damage your creditworthiness.

  • bank loan work best for those with a good credit history, and customers with an existing bank relationship may qualify for an interest rebate.

Look for lenders that offer direct payment to creditors, which simplifies the consolidation process. After the loan is completed, the lender sends your loan proceeds to your creditors at no additional cost.

Consider other features that some lenders offer, such as For example, an interest rebate for setting up Autopay, access to your credit score or free financial education.

When you’re ready apply for the loancollect documents such as proof of identity, proof of address and proof of income.

Take the time to read the fine print on the loan document. Any additional fees, prepayment penalties, and whether the lender reports payments to the credit bureaus can affect your credit score as well as the overall cost of the loan.

If you don’t meet the lender’s requirements, consider adding one co-signer with good credit for your application. This can help you get a loan that you wouldn’t be eligible for on your own.

5. Complete the loan and make payments

After finding and approving the loan you want, there remains one important step.

If the lender offers direct payment, they will pay out your loan proceeds to your creditors and pay off your old debt. Check your accounts for a zero balance or call each creditor to make sure accounts are paid.

If the lender fails to pay your creditors, you repay any debt with the money deposited in your bank account. Do this right away to avoid paying additional interest on your old debt and removing the temptation to spend the loan money on something else.

Finally, make your first payment within about 30 days of receiving the debt consolidation loan.

Which lender is right for me?

NerdWallet has reviewed more than 30 lenders to help you choose the lender that’s right for you. Below is a list of lenders that offer this The Best Debt Consolidation Loans.

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