Debt consolidation is a well-known situation in the United States and many financial institutions offer you support to implement it.
Faced with the growth of indebtedness due to poor management of personal finances, the loans to consolidate debts they are more common and this is what we will discuss in more detail here.
- How loans work to consolidate debts
- Types of loans for debt consolidation
- Approval requirements to consolidate debts
How loans work to consolidate debts
Debt consolidation often requires you to use different types of financing, such as a loan, to pay what you owe. It is always important to understand the risks that this implies and to know that there are additional costs that you must bear.
Generally, this resource is used to:
- Lower the interest rate what are you paying for.
- Lower the monthly amount of your expenses due to debt.
- Reduce the number of institutions to whom you owe.
- Bad Credit Loans
- Loan amount: between $ 500 and $ 10,000
- Term: between 3 and 36 months
- Check Into Cash
- Loan amount: between $ 50 and $ 1,000
- Term: between 14 and 30 days
- Cash Advance
- Loan amount: between $ 100 and $ 1,500
- Term: between 1 days and 6 months
- Loan amount: between $ 100 and $ 1,000
- Term: between 15 and 31 days
- Loan amount: between $ 100 and $ 50,000
- Term: between 7 days and 6 months
Debt consolidation loans are not a foolproof recipe in any case. Our suggestion is that you evaluate the options available to choose the most suitable for your financial situation.
It’s possible that using extra credit could make your current condition worse, and when you have poor credit, you shouldn’t even consider it.
Types of loans for debt consolidation
As with other types of loans, those designed to consolidate debt come in 2 basic forms:
With this option do you need any guarantee so that they can give you the money you are requesting. These products often have better interest rates than unsecured loans, saving you money in the long run.
Secured personal loan
- APR: 7.92%
- Minimum term: 12 months
- Deadline: 60 months
- Interest: 7.92%
- Minimum amount: € 5,000
- Maximum amount: € 50,000
For example, a home equity loan falls into this category and offers you a mixed interest rate. You can also find secured credit cards.
While the interest paid with the home equity loans they are deductible, those of the credit cards are not. The danger is that you can lose your home if you don’t have enough equity cushion.
As is to be expected, these credits do not require that you have collateral for their contracting. This option usually accepts an income-to-debt ratio (DTI) greater than 50%, a FICO score of 585, and the requirements are more flexible than for a secured loan.
There is a wide variety of online platforms and banks that give you the opportunity to get this financing. In this ambit we find both personal loans and quick loans.
You can apply online, get approved the same day, and find out who has the best conditions. Although they are easier to process, the interest rate is more expensive than the secured option.
Approval requirements to consolidate debts
While the evaluation of a lender is essential, so are the requirements necessary to get the loan to consolidate debts.
You need to know the probabilities you have of obtaining approval and if the required collections are adjusted to your financial situation. In this regard, you can expect the following:
- Minimum credit history. Most lenders who offer this financing usually ask for at least 3 years of good credit and 2 open accounts. Similarly, you should not file delinquencies, tax liens, bankruptcies, repossessions or foreclosures.
- Minimum FICO score. In this situation, those who offer loans to consolidate debts are a little more flexible with the credit score. The lowest average they demand is usually 580, but there are others that could raise it, so it is good to find out if you are within the expected range.
- Joint applications. While this option reduces risk for lenders, not everyone is willing to accept it. Having a co-signer allows you to qualify for more alternatives, but you must be careful to adhere to the terms so as not to harm the other person.
- Source of income. It is logical that financial entities or companies want to know if you can pay or not. As with the rest, you must evaluate the conditions of this requirement. A lender may only ask you for a stable source of income or a minimum of $ 12,000 a year.
- DTI. The income-debt ratio refers to the amount of money you pay in debt each month, divided by what you earn after taxes. While this percentage should be below 40, those who offer consolidation loans accept up to 50%.
Consolidating debts is not always the best option. In the event that you are looking for a loan for it, you will only have to pay a creditor. That is why it is important to evaluate which terms and conditions are the most appropriate.
There are many ways to carry out a debt consolidation and asking for a loan is one of many. The trick is to have a plan to follow, change your bad financial habits, and better manage your personal finances.
In the Blog Hispano de Negocios comparator you will find many reliable options to leave debt behind.