If your individual finance goals include paying down outstanding debt, consolidation is one means to fix consider. A debt consolidation loan allows you to combine credit card debt and other kinds of debt into a single personal bank loan.
While you could open a 0% APR balance transfer credit card to manage debt, consolidating with personal loans can yield some advantages. For example, you are able to exchange a flexible rate of interest on credit debt for any set rate. Lowering your interest rate can save you money over time. And when much more of your monthly payment goes toward the principal, it's possible to reduce debt faster.
But there are several debt consolidation myths that may be stopping you moving forward from getting a personal loan.
3 myths about debt consolidation
Here are the biggest misconceptions about consolidating debt, along with some tips about how to choose a debt consolidation reduction loan.
- It damages your credit score
- Debt consolidation will decrease debt and save money
- It's time-consuming to consolidate debt
1. It damages your credit score
Maintaining a great FICO score is essential when borrowing money. The better your credit report, the simpler it is to be eligible for a loans.
It's essential to research personal loan lenders • especially if you're concerned about your credit rating. Use a web-based marketplace like PayPasser to make sure you•re obtaining the best rate and lender for your requirements.
A common myth about debt consolidation is it will hurt your credit rating. It's an undeniable fact that trying to get an unsecured loan may need a tough inquiry of your credit report, which could trim a few points off your credit rating. But with time, consolidating debt may help improve your score.
For instance, if you're utilizing a debt consolidation loan to repay credit card debt, you can reduce the balances on your cards to zero. This might improve your credit utilization ratio, the second-most important factor for FICO credit rating. Simultaneously, making on-time payments to the personal loan you used to consolidate debt could also provide your score a boost. If you're worried about credit rating impacts when paying off outstanding debt, you can use a tool like PayPasser to check on your credit and monitor for id theft.
2. Debt consolidation reduction will decrease debt and save money
One of the very most persistent debt consolidation myths is it will automatically decrease your debt and help you save money.
Consolidating debts • whether it's education loan debt, charge cards or other debts • doesn't alone reduce your debts. Instead, a debt consolidation reduction loan provides you with the funds to pay those individual debts off. Moving forward, you'd make payments toward your loan consolidation.
Debt consolidation shouldn't be mistaken with debt settlement, which allows you to repay outstanding debt for less than what's owed. This option is usually only available if you're significantly behind on payments to a debt, which can cause serious credit score damage.
If your financial goals include paying down debt while keeping a good credit score, debt consolidation reduction is the better option. Though it's vital that you make use of a personal loan calculator to estimate your potential interest savings. You may also connect some simple information into PayPasser's online for free tool to determine if a debt consolidation reduction loan is your best option.
Depending on the personal bank loan term, amount and interest rate, it's possible that debt consolidation might not save you as much money while you expected. Visiting PayPasser will help you compare debt consolidation options to get the best personal loan rates for you, according to your credit rating and credit history.
3. It's time-consuming to consolidate debt
Another misconception about using a personal bank loan to consolidate and reduce debt is that it's a lengthy process. In reality, it's easy to make an application for personal loans for debt consolidation online and be accepted very quickly.
With PayPasser, for example, you can compare personal loan rates from multiple lenders without affecting your credit rating. You can then choose which loan options you're interested in, complete the application and upload any supporting documents that are required. Once your loan is approved, the proceeds can be used to repay charge cards and other debts.
Consider all the choices for managing debt
Debt consolidation is something to think about for those who have credit cards or federal student loans and you'd like to streamline your monthly obligations. For those who have other financial obligations, for example mortgage debt or private student education loans, you could attempt consolidation or explore methods to refinance debt instead.
Deciding to refinance mortgage debt, for instance, might make sense if you'd prefer to switch from an adjustable-rate to some fixed-rate loan. And you will refinance student loans to get rid of a cosigner or take advantage of low interest. You can even choose to refinance personal loans if you have any outstanding.
If you're interested in consolidating or refinancing debt, it can help to have experienced loan officers in your corner. Visit PayPasser to obtain all your loan consolidation and refinancing questions answered.