Do you have several loans with varying interest rates and due dates? You might benefit from a debt consolidation loan. Let’s take a look.
What Is a Debt Consolidation Loan?
A debt consolidation loan takes all your debts and payments and rolls them into one loan. Why would you want to do this? You may have loans and credit card debts with high interest rates. A consolidation loan allows you to pay off all those different debts and just have one monthly payment. It most likely will also have a lower interest rate than all the other debts had.
Making one lower payment instead of multiple monthly payments frees up more cash for your monthly budget, or you can put that extra cash toward paying off your debt consolidation loan even faster.
Debt consolidation should not be confused with debt settlement. Debt settlement is when you work with companies to take away some of what you owe. Debt consolidation helps you pay off what you owe.
There Are Two Types of Debt Consolidation Loans
Secured loans are loans you take out for which you put something up for collateral. You might use property, a car, or your home. Secured loans have lower interest rates than unsecured loans.
Unsecured loans do not have collateral, so they are more of a risk for the lender. As such, they usually have higher interest rates than secured loans, but the rate may still be lower than the rates on the debts you are trying to pay off.
Is Debt Consolidation a Good Option for You?
Not everyone benefits from debt consolidation. Here are some indications that it is a good choice for your specific needs:
- Your credit score is good.
- If by consolidating your loans and debts, you will become debt-free faster.
- You have enough cash to cover your monthly payments.
Consolidation may not be right for you if you are already close to paying off all your debts. If you are only going to save a marginal amount, it might be best for you to continue paying off your debts on your own.
How Do You Build Credit by Paying a Loan?
If you have had trouble paying off your debts and you need to rebuild your credit score, you might want to look into a credit-builder loan.
Unlike a traditional loan where you borrow money from a lender and then pay it back, a credit-builder loan has you pay for the loan – and then get the money. It is almost like putting money into a savings account that you can’t touch until it is paid in full.
If you make your payments in full and on time every month, your bank reports this to the credit bureaus, and your credit score increases. But, make sure you are able to make those payments. If you default or make late payments, you could end up hurting your credit score rather than helping it.
What Are Some Other Ways to Build Credit?
The best way to improve your credit score is to make all your payments in full and on time. If you have any past-due debts, pay them off as quickly as possible.
Don’t apply for any new credit cards. Applying for credit brings your score down. It causes an inquiry into your credit standing and lowers your credit accounts’ average age.
Make sure you keep your credit card balances low. The less debt you carry keeps your credit utilization ratio low. And finally, make sure to check your credit report every year. If you find any mistakes, make sure to have them resolved.
If you have multiple debts or loans with varying interest rates, consolidating those debts may be in your best interest. This will bring all of them into one lower payment with one lower interest rate.
A secured debt consolidation loan has a lower interest rate and payment than an unsecured loan because you are putting up collateral. So, make sure you are getting the right kind of loan for your needs.
A more positive outlook toward a more financially secure future starts today. Give the Ascent Network a call today at 1-877-871-2400. Ascent Network helps consumers all over the United States. It is available locally in Huntington Beach, CA, Coachella Valley, Palm Springs, Cathedral City, Rancho Mirage, Palm Desert, Desert Hot Springs, Indian Wells, La Quinta, Indio, and Thousand Palms.