If your Wiba If your credit rating is below 580, it could be difficult to manage your finances with debt consolidation. But if you have a “just” credit or better and if you can be approved for a debt consolidation loan, this can be a simple way to reduce your monthly payments, reduce the number of creditors you owe and reduce the repayment period of your debt. .
Debt consolidation is a method of getting a new loan to repay the high interest rate debt in order to streamline monthly payments and save money over time. People usually use personal loans, low-interest credit card balance transfers or debt management plans to consolidate their debt.
Debt consolidation with zero or medium credit
The Wiba Goal, which ranges from 300 to 850, is the most widely used credit scoring model for lenders to assess a borrower’s creditworthiness. It has several ranges. Credit scores above 670 are considered good, very good or exceptional depending on the score. An “acceptable” score ranges from 580 to 669 and any score below 579 is considered “poor”. Knowing your credit score is important in determining your options, but even with less than perfect credit, there are still ways to consolidate your debt.
Debt consolidation with a personal loan
Although debt consolidation options are available for people with “poor” scores, they often have high interest rates that may be higher than those of your current loans.
A good option would be to consult online lenders like Upstart, a personal loan partner of Experian. Upstart examines other data, beyond credit reports and scores, to determine if a person qualifies for a loan. Factors such as employment history, income and education determine whether a candidate qualifies for a loan and a lower rate.
APR : 6.00 – 29.99% depending on the financial profile
Term : 36, 60 months
Upstart offers loans of up to 50,000 euros that can be used to pay credit cards and consolidate other types of debt. Upstart has an easy application process and taking out a loan will not affect the credit scores of the applicants.
What are the benefits of a debt consolidation loan?
One of the main advantages of a debt consolidation loan is eliminating the task of paying several lenders each month. When you consolidate all your existing debts into a new loan, you just need to make payments to your new lender. Making a single payment is not only easier, but can also help you avoid late or missed payments, which can happen when you manage multiple different payments each month.
Payment history is the most important factor in calculating your credit score, accounting for 35% of your Wiba. Score – and it is important to avoid paying loan payments beyond their due date. Late payments can easily occur when someone makes multiple loan payments each month and does not use the automatic payment feature. Another benefit of a debt consolidation loan is the reduction in the amount of interest you pay on your outstanding debt. People usually use debt consolidation loans to pay off their high-interest debt, such as credit card debt, whose interest rates can range from 18 to 25 percent. In most cases, a debt consolidation loan will have a much lower interest rate depending on your creditworthiness, which will save you money on interest throughout the life of your loan .
Imagine that you have a credit card debt of 5,000 € with a APR of about 25%. Over 36 months, the monthly payment of the debt would be about 240 € and you would pay a total of 2,500 € of interest. If you were consolidating this debt into a new loan with an average APR of 17% over 36 months, the total amount you pay in interest would decrease to about $ 1,700 and your monthly payment to $ 200. In this scenario, the lower the APR of your new loan, the less interest you will pay over time.
How can I qualify for a debt consolidation loan
Depending on your credit range, taking out a debt consolidation loan might not be the best idea. If your credit score is “poor,” it can be difficult to get approval for a debt consolidation loan. Lenders often consider that people with “poor” credit levels are risky and, therefore, can not give a new loan to a person of that nature.
Another potential problem with getting a debt consolidation loan with a “mediocre” credit score is that the interest rate on your new loan may, in some cases, be higher than the APR of your loan. existing debt. Lenders often use your credit worthiness to establish the interest rate you get. As a result, people with “poor” or even “fair” credit ratings should be careful not to take on new, higher-rate loans.
Debt Consolidation Loan Options for the Military
It can sometimes be more difficult for members of the military to obtain new credit from conventional lenders. When spending long periods away from home without having to borrow and use revolving lines of credit, the military often has a lower credit history.
As a result, there are specialized private lenders that serve exclusively the military. Through these lending institutions, the military can apply for auto loans, mortgages and even personal loans that can be used for debt consolidation.
Obtaining a personal loan from a military lender is an option for military members trying to consolidate their existing debt. Military lenders consider claimants with a lower score but can still find people with a seriously compromised credit history risky.
April: 11.99 – APR 35.95% consistent with military loans Law
Term : 36, 48 months
Pioneer Services is a military lender that only works with current and former members of the military. They offer loans to military candidates with bad credit and use non-credit records and assess their creditworthiness.
Alternatives to debt consolidation
While consolidating your debts may seem like the best way to reduce your monthly payments or eliminate the worry of paying multiple bills each month, other debt management tactics may be a better option.
Debt management plans
Before considering a loan application, one of the options is to use a debt management plan to consolidate your monthly payments. With a plan like this one, you first need to find a credit counselor and work with them to formulate and adhere to a repayment plan. Once you and your advisor agree on a plan, they will often try to negotiate with your creditors to find out if they can get a lower monthly payment and sometimes a lower interest rate.
In this scenario, once the advisor has finished negotiating, you pay his or her organization directly every month and he makes all your monthly debt payments for you.
A debt management plan can be a good alternative for people with a “poor” credit rating and can not be approved for a debt consolidation loan.
Using the credit card
Responsible use of credit cards can help you not to accumulate too much debt and not be late in paying. Knowing how to pay off a credit card debt can be extremely helpful and help you save money over time.
Create a budget
Budgeting and tracking your expenses is a critical step in understanding how much you can afford to pay each month to cover your existing debt. Once the budget is in place, you can reserve a fixed amount for the repayment of your debts and reach your goal of repayment of your loans.
If you are overwhelmed by debt and do not see any way to repay it, bankruptcy can help you find relief. However, the bankruptcy statement will remain in your credit record for seven to ten years and could affect your ability to obtain other loans in the future.
If you think that debt consolidation can help you, but you are unsure of your credit score, Experian’s Credit TM tool can help you find a personal loan based on your Wiba Purpose.
Personal loan calculator
The information provided is for educational purposes only and should not be construed as financial advice. Experian can not guarantee the accuracy of the results provided. These results, based on the information you have provided, represent an estimate and you should consult your own financial advisor to find out about your particular needs.
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Editorial Disclaimer : The opinions expressed herein are those of the author, not those of a bank, credit card issuer or other company, and have not been reviewed, approved or otherwise approved by one of these entities. All information, including rates and fees, is accurate as of the date of publication.