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Best Personal Loans for Debt Consolidation: Pay Off Bad Credit Card Interest

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Dan Steadman

Financial Advisor, DCL

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Getting Personal Loans for Debt ConsolidationOptions when Considering Debt Consolidation

If you are in debt, then finding a solution is not always easy, and many people feel as though they have no options from which to choose. Inability to get your debt under control can cause you to miss payments, resulting in damage to your credit report. Although your situation might seem hopeless at first, it’s not. You can use several methods to get your budget under control, and obtaining a personal loan could be the right answer for you.

Borrowing additional money won’t always make sense, but you will see how it can help after you learn about the benefits. You are going to discover the top reasons for getting a debt consolidation loan. You will then have the information that you need to move forward, and the right path will become clear.

Should You Get a Personal Loan for Debt Consolidation?

A debt consolidation loan is another option for those who would want to improve their financial situation. It is another financial solution that helps those who have several debts from different creditors and would like to just put them all in one place.

You may have heard of it, or people may have actually offered you this option However you probably have many questions you need answers to. Here are some common questions associated with this topic, if you find your question there, read on and see the explanation below:

  • Is a personal loan the best option to consolidate all my debt?
  • Which is better, getting a personal loan for loan consolidation, or just transfer all the balances from other loans to a new credit card with a lower interest rate?
  • If personal loan is the chosen option, what types of personal loans are available for debt consolidation?

It is a common practice to have several loans and debts. More often than not, borrowers feel swamped and are drowning in an ocean of debt while they live pay check to pay check. As if paying interest rates is not bad enough, loans and debts get harder and harder to pay when you get to sign up with ten different creditors and need to pay ten different loans in a month on top of your other responsibilities. There is a lot of time and money wasted on trying to keep afloat without getting swallowed up whole by your debts. As indicated in a recent report by the Federal Reserve, an average American household owes at least $15,700 from credit card companies alone.

Credit cards are convenient to have when hard times hit and you find yourself down to your last penny. A lot of consumers opt to get several credit cards from different companies These credit cards do more harm than good in the long run. According to the report from the Federal Reserve, some credit cards companies charge more than a 20 percent interest rate. The average annual rate is at 15 percent, and if you have a high balance left unattended on your card, you can expect a brutal beating in the future. Imagine making a minimum payment of just the interest and at least 1% of the debt balance of a $15,700 loan; that will set you back almost $500 payment each month, and at this rate, you will take 32 years to completely cover that loan. It that does not sound bad enough, after paying everything, the accumulated payment over the years will amount to $25,557, almost double the amount of the original loan.

What is Debt Consolidation?

Debt consolidation allows qualified customers to get new loans to pay off credit card debt and other bills partially or all of their outstanding debts. This is to consolidate all existing loans and combine all of your balances from different creditors into one convenient location.

You no longer need to write ten different checks and go to ten different creditors each month just to pay your outstanding balance. This option has lower interest rates than what borrower are usually paying and it also shortens the loans from other creditor saving borrowers from paying more interest in the future.

What Options are Available for Debt Consolidation?

There are a lot of things you can do that aim for debt consolidation, but if you really look at it, debt consolidation has three main options:

Get a personal loan from any financial organization

After looking into a new line of credit from another bank or company, getting a personal loan does seem to be a better option. When you weigh the pros and cons of these options, the potential outcome of another line of credit does not seem like a productive choice. When you look into a personal loan, you will experience these benefits:

  • Lower interest rates
  • Lower monthly payments
  • Flexible monthly payments that make budgeting a lot easier
  • Shorter time paying debts

With those mentioned above, a personal loan does seem to be a better move to consolidate your debt compared to a credit care, especially if you are experiencing the following:

  • You pay several bills every month and would like to have more convenient option
  • You have difficulties in making your minimum payments for all your loans
  • You are unable to come to an amicable agreement of a lower rate with your credit card companies.

There are a lot of options our there for personal loans when you start to explore your options. Do your research before making any decision. Read up on whatever documentation you can find about the online lenders that have caught your attention, or go and visit the brick and mortar storefront and talk to a representative. Do not be afraid to ask question and to delay signing up if you have questions that are left unanswered, you do not need to rush into applying because there are tons of lenders out there.

You can also check with your current bank regarding their personal loan offers. You can either opt for an unsecured loan where there will be no collateral but will have a higher interest rate, or go for a secured loan that requires a collateral but offers a lower interest rate. You can also check out options with fixed rates or variable rates. Those loans with fixed rates usually have higher interest rate while the variable rates tend to be lower, but you will experience fluctuations overtime.

Transfer all your balance from one card to another

Credit card advertisements and offers are very tempting especially when they get to flaunt the low interest rate you need to pay in the introductory period which saves you money. The computation and the marking does add up to show you will save money, but it will only do so, short term.

Those who have a high amount of outstanding balance may not qualify for this option and they may not be able to take advantage of the low interest rate introductory offer. The credit limit is another concern that should be looked at since all new customers are given an entry level credit limit that may or may not cover the entirety of your outstanding balance.

If this is the option that is more appealing to you, you might want to take a little more time thinking it over and do the math again. If you do get to qualify for the introductory offer and it does cover the rest of your debt, you also need to look into the length of the introductory offer and the amount you need to pay once the period is over. You have to foresee if you are able to pay off your remaining balance before the lower rate increases, and you also have to see how high it jumps once the new rate takes effect. At this point, you have to check if you are at a better position before you started or much worse.

You also have to gauge yourself control and how well you are able to resist temptation in getting more credit cards and burying yourself under more debt and credit. Do not sign up and stay away if you have sliver of doubt.

Get a personal line of credit

This is very similar to a personal loan, but instead of getting the lump sum as you do with loans, you will just have easy access to funds and use them only when you need them. This is also great option since you only pay for what you use and the rates are very flexible with very low annual fees.

It does not matter which of these options you take, what matters is that you take the one that makes the most sense to you. There are also many lenders out there that offer Debt Management Plan that are designed for the customers to regain control of their finances while paying unsecured debts. Do not lose hope when you do not see the results you are looking for. You need to carefully read the terms and conditions as presented to you by your lender before signing on the dotted line.

Working with the best debt consolidation companies does sound like a great solution that will allow a little bit of relief from your monthly responsibilities, but this may not always be the case. Before engaging in another contract, you have to be sure of what you are signing up for, if you need a secured loan and do not have a home that you own, getting a personal loan or line of credit might not be a viable option. You can also look into debt settlements and negotiate with debtors for a lower balance after a lump sum payment. This may hurt your credit score a little bit, but it is still better than bankruptcy and there are no upfront fees.

Debt Management

Those who are forced to make several loan payments each month often find that keeping track of their budget is a challenge. Without taking steps to correct the problem, you risk forgetting to make a payment, and monitoring your spending will be that much more time-consuming.

A debt consolidation loan will empower you to reduce your bills into a single payment, and you will not need to worry about those problems anymore. Before you get started, find out how much it will cost to repay your existing loans.

Lower Your Monthly Payments

If you are like other consumers, then you are searching for ways to reduce the interest on your loans, and doing so is not as hard as you might think. With a debt consolidation loan, you can extend the duration of your current loans, and your monthly payments will become much smaller.

Also, if your credit score is better than it was when you first borrowed the money, your new score will work wonders to reduce your interest rate. After they decide to see what debt consolidation loans can do for them, people are often impressed by the results.

Local Banks

After you determine that getting a debt consolidation loan is the right choice, you might be wondering where to apply. If you have a good relationship with your local bank, then you can speak with a loan officer to see the type of deals with which they can provide you. If you go to your local bank, keep in mind that you won’t always get the best available deal. Because each bank has its own terms and interest rates, you will need to apply to several of them to weigh your options effectively.

Online Finance Companies

If you want to save time and energy, you can always opt to get a debt consolidation loan from an online finance company. When you do so, getting a good deal will be easier than you once thought possible. Applying for several online banks is a quick process, and you can even go through a company that allows multiple lenders to pitch their loans to you. When banks compete for your business, they will be forced to offer the best deals that they can provide, and you will be able to choose a finance company that stands out from the rest in a positive way.

Final Thoughts

Although it can provide people with many noteworthy benefits, a debt consolidation loan is not for everyone. Taking the time to review your situation and budget will go a long way in helping you decide where to turn. If you can get a loan that has a reasonable interest rate, the reduced monthly payments will eliminate stress and give you peace of mind.

FAQ

Debt consolidation is a process of taking out a new loan to pay off multiple existing debts. By rolling these debts into one, you can re-negotiate a lower monthly payment and longer repayment term. Taking out personal loans to consolidate debt is one option available for borrowers. You can learn about the common questions that you might encounter during this process below.

Debt Consolidation Process

In this section, you can get a more detailed look into the process of consolidating your debts. You will get more information that will prepare you for the process ahead.

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How to get a personal loan to consolidate debt?
The first step is to decide whether you want a secured or unsecured personal loan. Then, determine how much you need to borrow and do comparison shopping of lenders in your area (or online). Be realistic when applying for personal loans to consolidate debt and know that you might not get the best interest rate.
Does the VA offer personal debt consolidation loans?
Yes. You can take out personal loans for debt consolidation, even with a bad credit. Depending on your credit history, the interest rate can range from 5% to 36%. You can apply for unsecured loan of up to $40,000.
How do I consolidate my credit card debt without personal loan?
A debt repayment plan is a good option if you do not want to take out personal loan. It enables you to re-negotiate a new payment plan for your debts that would be easier to manage. This is also a good step to avoid the risk of revolving debt when you acquire a new personal loan.
Is a debt consolidation loan a personal loan?
Debt consolidation loan is different from a personal loan. The former is a type of debt refinancing that enables you to pay off your other debts and get a new payment term and interest rate. Personal loan is one of many options available for consumers to consolidate a loan.
Do banks give personal loans to pay off debt?
You can apply for personal loans to pay off debt from a bank; however, getting an approval might be difficult. You must have good credit for that. You will have better luck with credit unions and online lenders.
How to get out of personal debt?
Getting out of personal debt is a long and complex process. It starts with picking the right debt management strategy. First, you must determine if you can afford to pay the total monthly payment for your multiple debts. If not, you can consider consolidating your loans to make payments easier to manage and to ensure you won’t miss a single debt payment.
Can I use a business loan to pay personal debt?
Yes, you may apply for a business loan and use it to pay your personal debts – provided that you are the legitimate owner of the business.
Can you transfer credit card debt to a personal loan?
Taking out a personal loan to consolidate credit card debt might be a better option compared to balance transfer credit cards, according to finance experts. The 0% interest rate on balance transfer credit cards are attractive only within that introductory period, but once that is over the interest rates are almost always higher than that of personal loans. At the same time, the rate and payment period on personal loans are fixed, making it easier to predict payments and help you budget more efficiently.
Is a personal loan unsecured debt?
A personal loan is often unsecured loan. Some banks or lenders will require collateral, though, especially if you have poor credit score, to mitigate the risks.
How much student loan debt does the average person have?
In the US alone, there is an average total student loan debt of $1.5 trillion. For every student, that would mean an average debt of $37,172.
What should you offer to settle a personal loan debt?
There are many ways to negotiate a settlement with your creditor for a delinquent debt. You may be able to settle anywhere from 30 to 70% of the total amount you owe if you are able to pay in lump sum. Make your offer attractive since the lender is not obligated to accept your offer.
Can debt management help with personal loans?
A debt management plan is a good approach to paying off your debt. You will work with the debt management plan provider to calculate your income and expenses so you can determine how much you can afford each month to pay debts. You can use that figure to negotiate with your lenders. If you follow through your plan, it can definitely help with personal loans.
Who offers a personal loan for people with overwhelming debt?
There are many options available if you want to acquire a loan to cope with overwhelming debt. Some of your options include credit unions and online lenders. They can offer favorable terms as compared to banks.
What kind of debt are personal loans?
There are several types of personal loans that you can apply for. Some of them are unsecured personal loans, secured personal loans, fixed-rate loans, variable-interest loans, debt consolidation loans, and secured and unsecured lines of credit.
When does the average person finish paying student loan debts?
The standard repayment period for most federal student loans would be 10 years. However, most individuals who take out student loans expect to pay them in full in their 40s.
Is a personal loan revolving debt?
No. Personal loan (a type of installment credit) is dissimilar to revolving debt. A good example of revolving debt would be lines of credit.
How is marital personal loan debt divided during divorce?
Debt acquired by one spouse prior to marriage is attributed to one person only. But debt acquired during the marriage is the responsibility of both spouses. In the event of divorce, they must divide the marital debt between the two of them.
Is a personal loan installment debt?
Yes. Personal loan is a type of installment debt wherein you have fixed repayment terms – the interest rate and length of the repayment period is determined.
Do personal loans lenders look at debt to income?
Yes, lenders look at your debt-to-income ratio before approving your personal loan application. This ratio will determine your capacity to make payments on the loan.
Is student loan a personal debt?
Student loans and personal loans might seem interchangeable but they have key differences. The main difference lies in the purpose of the debt. A student loan is designed primarily to pay off your college debts. Meanwhile, a personal loan can be used for whatever purpose suits you.
Should I refinance my credit card debt with personal loan?
The only time you should consider taking out personal loans to refinance your credit card debt is IF it will lower your annual interest rate (compared to the interest rate you are currently paying).
Can you use subsidized loan for personal debt?
Subsidized loan is a good option to pay off your personal debts, since you won’t be required to pay interest (temporarily). However, you must be able to provide proof of financial need before you can qualify for one.
Is a personal loan commercial debt?
No. Personal loans must only be used to cover for personal expenses. Commercial debts are those used to fund expenditures and operational costs associated with a business entity.
Should I transfer credit card debt to personal loan?
Transferring your credit card debt to a personal loan is a more favorable option than balance transfer credit cards. Unless you can pay off your credit card debts within the introductory period that offers 0% interest rate on transferring credit card balances, then a personal loan is a better option.
Can I get a personal loan to consolidate debt?

A personal loan is a good option to consolidate credit card or other types of debt. This will allow you to get a more flexible loan term and potentially a lower interest rate. It is also easy to find unsecured personal loans from online lenders and credit unions, which is great for those with low credit score. Learn more: How does a debt consolidation loan work?

Debt Consolidation Benefits

This section will provide a glimpse on how you can benefit from obtaining personal loans for debt consolidation. You will learn more about how to use this type of loan to wipe off your debt.

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Are personal loans good for debt consolidation?

Yes. It is a good option if you find it difficult to keep up with multiple debts. By obtaining a new personal loan, you have the chance to get a lower interest rate and make payments easier to manage.

Which is better: debt consolidation or personal loan?

If you are overwhelmed in your debts, you have two options to pay them off: debt consolidation loan or personal loan. Taking out debt consolidation loan might give you protection from your previous lenders, while at the same time paying off all of your existing debts. A personal loan, on the other hand, is more flexible as you can use the money you borrow to pay off debt and to over other expenses. There may be veteran debt consolidation loans available too which is an option to look into if you are a veteran.

Debt Consolidation and Credit

In this section, you will discover how you can impact your credit score by consolidating your debts. If you have any questions about your credit score, you might find the answer here.

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Does a personal debt consolidation loan affect your credit negatively?

No. In fact, a personal debt consolidation loan can help you pay off any delinquent debts. By paying off your other existing loans, you can improve your credit score. Just make sure that you pay your newly consolidated loan on time. If you already have a low score then ask about bill consolidation loan bad credit options.

Is a personal loan better than credit card debt?

Personal loans are better than credit card debt. Not only does the former have lower interest rate, personal loan is an installment type of debt. You can repay the loan for a 2- to 5-year period, depending on your credit score.

How to calculate debt to income ratio for personal loan?

To calculate your debt-to-income ratio, add your monthly bills and expenses and divide that with your gross monthly income (before taxes). The answer will be your debt-to-income (DTI) ratio. The lower your DTI, the less risky you are as a borrower (from the lender’s perspective).

Does a personal loan look better than credit card debt?

Yes. Personal loans are easier to manage and credit cards only have a low interest rate during the introductory phase. Once that is ever, you will be faced with steep interest rates that will only make your credit score dip further.

Is a personal loan bad debt?

Not necessarily. If you use personal loan to pay off multiple debts (especially credit card debt), it can actually help to improve your credit score. And if you’re in the service then you may be able to get military debt consolidation loans for bad credit but be sure to get properly informed about this before committing to anything.

Will a personal loan cover all my debts?

It depends on the amount that was approved on your personal loan application and your total debts. Your credit score can be a factor too, because it will determine how much a lender would be willing to approve for your loan.

Dan Steadman

Dan Steadman

Financial Advisor, DCL

Dan is one of the top financial experts when it comes to debt consolidation. With more than 20 years of experience helping people tackle debt, he has a unique insight when it comes to solving debt-related problems. 

Dan got his start when he went to work for a bank after getting his Business Degree. He worked his way up and became a loan officer. This position gave him unique insights into the ways that financial products work and how people can utilize different financial products to improve their lives. He’s seen hundreds of success stories and just as many failures – so he knows what steps are most likely to help his readers.

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