Youâ€™ve decided that itâ€™s time to finally take out a debt consolidation loan to get rid of your credit card debt once and for all. For many people, this is a good move if theyâ€™re looking to get their financial lives back on track. For others, this might not be the right choice for a number of different reasons that we will try to go into below.
Just know that using debt consolidation loans to pay down high interest credit card debt is often the right choice for many people, but itâ€™s not necessarily for everyone. With that said, letâ€™s find out more about debt consolidation loans and then weâ€™ll take a brief look at how to compare the lenders themselves.
How to Determine If You Are a Good Fit for a Debt Consolidation Loan
As mentioned previously, not everyone is the ideal fit for a debt consolidation loan.
Some people could potentially end up in even worse shape because they extend their credit card debt repayment plan even further.
To avoid making your life even worse, please consider the following:
- Consider debt consolidation loans if youâ€™re going to be able to avoid adding additional debt to your life while you pay this loan off. Itâ€™s going to be a challenge for many people to pay off the new loan, so adding additional debt is only going to make life that much harder.
- If you are going to take out a debt consolidation loan, one of the first rules of thumb to keep in mind is that the interest rate should always be lower than the credit card interest rates. Otherwise thereâ€™s no real reason to pay off your credit cards with a loan, because youâ€™ll only end up paying more interest over the long run.
- Are you having a hard time keeping up with your smaller credit card payments?
If thatâ€™s the case, then it might even be more difficult to take on one larger payment.
Youâ€™ll have to really buckle down and get focused and work diligently to pay off this debt. Because if you donâ€™t, you could end up making your life a lot worse and you can destroy your credit in the process if you fail the payback this loan.
According to Credit Consolidation, experts teaching people how to consolidate credit card debt with a loan, â€œIt is also a good choice to consolidate your debt if you can go from a variable interest rate to a fixed one.â€
At the end of the day, if you do choose to take out a debt consolidation loan, please pay attention to things like lender fees, lender support, using a cosigner to get a lower interest rate, and all other options that will make your life a bit easier.
Comparing Debt Consolidation Lenders
Now that youâ€™re committed to taking out a debt consolidation loan, there are a few factors that you need to keep in mind. They are:
- Will the lender provide help to pay down your debt?
Some lenders will offer good credit borrowers the ability to pay their creditors directly. In this scenario, it makes it much easier to successfully pay off your debt.
Remember, not every online lender is going to provide this feature, so if it sounds appealing, you may want to consider finding a lender offering this option.
- How high are the lenderâ€™s fees?
When you take out a debt consolidation loan, know that you are going to end up paying a lender fee. Itâ€™s called an origination fee, and it will typically range from 1% to 6% of the amount of the loan.
Obviously, youâ€™ll be in much better shape if you can find a lender that does not charge this type of origination fee. A few options include SoFi, Marcus, LightStream, and Discover.
Please keep your options open and choose a debt consolidation lender with the best options to meet your needs.
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