Debt Consolidation Loans | Lower Your Monthly Payments (2024)

FAQs

Debt Consolidation Loans | Lower Your Monthly Payments? ›

When consolidating debt, your overall monthly payment is likely to decrease because future payments are spread out over a new and, perhaps extended, loan term. While this can be advantageous from a monthly budgeting standpoint, it means that you could pay more over the life of the loan, even with a lower interest rate.

Benefits of Consolidating

Consolidation can lower your monthly payment by providing access to additional income-driven repayment plans or by giving you more time to repay your loan (up to 30 years) if you choose the Standard or Graduated repayment plan.

Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

You can afford to repay the loan: A debt consolidation loan will only benefit you if you can afford to repay it. You'll risk getting into a deeper debt cycle if you're not 100 percent sure you'll be able to afford the monthly payment down the road.

The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.

If you're one of the millions of Americans struggling to repay high-interest debt, a debt relief plan may be an option to help you get your finances on track. But it's not a quick fix. It's a long-term solution designed to help you get out of debt over a period of time — typically several years.

Insufficient credit history or poor payment history can also lead to a denial of a debt consolidation loan. Remember, your payment history is the most important factor in your credit score, comprising 35% of your FICO^® Score. Even one missed payment can damage your score.

What Is A Hardship Loan? A hardship loan is a type of financing that helps people dealing with a financial crisis caused by an emergency expense or an income shortfall. You can use a hardship loan to cover everything from a surprise medical or car repair bill to necessities like food and rent.

Government and other relief programs offer grants – money that doesn't have to be paid back – to help with living expenses and more, for those who qualify. While there are no government debt relief grants, there is free money to pay other bills, which should lead to paying off debt because it frees up funds.

Will banks do debt consolidation loans? ›

Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make.

You'll need basic proof of identification, like a driver's license and Social Security card, as well as documents to prove your income, like pay stubs, bank statements and tax returns. You'll also want to gather the latest statements from your loans and credit card accounts.

You can get a debt consolidation loan with a credit score of 450 if you apply with a lender that does not have a credit score requirement. However, these loans typically have high APRs to make up for the lack of a credit score requirement, so you might not save much money.

If you qualify for a lower interest rate, debt consolidation can be a smart decision. However, if your credit score isn't high enough to access the most competitive rates, you may be stuck with a rate that's higher than on your current debts.

Success with a consolidation strategy requires the following: Your monthly debt payments (including your rent or mortgage) don't exceed 50% of your monthly gross income. Your credit is good enough to qualify for a credit card with a 0% interest period or low-interest debt consolidation loan.

First, you can contact your loan provider and ask whether you can bring down the payments. Lenders may be able to provide support, such as a payment holiday or a period of reduced payments or reduced interest, or a repayment plan.

Pay more than the minimum amount due

The interest component is the monthly finance charge that is calculated on how much you still owe. So, every time you can pay in more than the minimum amount, you reduce the principal amount owed faster.

Streamlines Finances

Combining multiple outstanding debts into a single loan reduces the number of payments and interest rates you have to worry about. Consolidation can also improve your credit by reducing the chances of making a late payment—or missing a payment entirely.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.