Debt Consolidation Guide

Debt consolidation could be the best solution out there for you if you are swarmed with credit card debt. Choosing this route will cut down your interest rate on debt, which will reduce your payments. 
 

What is Debt Consolidation?

Debt Consolidation is a financial strategy in order for you to pay off all your credit card debts and any other debts you accumulated. They do this by merging all your bills into one, and you can pay it off by either a debt management plan or a consolidation loan. 

Debt consolidation often reduces your interest, which leads to lower monthly payments and reduces the overall debt amount. So the whole dilemma of paying off multiple debts to multiple companies is solved. Put simply, once a month; you pay one payment to one source.
 

What Type of Debts Do They Cover?

Debt consolidation covers: 

• Credit Card Debt: This includes any outstanding balances you accumulate each month from any card you use. The average American has $5,315 in credit card debt, and the average interest rate is 16%.
• Personal loans: This includes unsecured loans, anything that is not backed up by collateral or a guarantor. If you are paying multiple sources, then you might want to give it a shot and combine all your loans into one. 
• Medical loans: With how expensive hospital visits are, it is easy to rack up the bill to a couple thousand dollars. If you've had multiple visits and you've got multiple channels to pay to, you might want to consider debt consolidation. 
• Payday loans: This is a short-term loan with high interest that people take to cover other expenses.
• Student loans: This type of loan is split into two categories governmental and private loans.
   

Debt Consolidation Requirements

The first thing you'll need is a steady income; you'll need to provide proof that you can make all the monthly payments required from you. 

Another thing you'll need is a good credit score if you want a consolidation loan; this is a way to prove you are creditworthy. If your credit score is above 740, then a debt consolidation loan is a great option for you since they offer a great interest rate. If you fall between 670-739, you will qualify, but you'll end up paying a higher price. For everyone underneath that credit score, taking a bad credit consolidation loan isn't the best option as the interest rates are so high. 

The last thing you'll need is an unsecured debt exceeding $5,000.

Difference Between Debt Consolidation and Debt Settlement

Debt consolidation lets you pay all your debts into one channel to help you keep up with them, but you will end up paying the full amount of debt. On the other hand, debt settlement is a type of debt relief; if you qualify, they can negotiate the term with your creditors, and you'll end up paying less than what you originally owed.
 

Steps You Need to Get a Consolidation Loan

1. Check your credit score:

Before starting the process of qualifying for a consolidation loan, you'll need to check your credit score; because your score determines whether or not you can get the loan and how much interest you'll be paying. 

Some companies do not accept anyone under the score of 580, so it is important that you go through the requirements beforehand. If you don't need the loan immediately, you might want to build up your credit before applying to lower the interest rate. Here are a few ways to do so: 

• Repay Your small debts.
• Make sure you have no late payments.
• check for any errors on the credit report.

2. Analyze all your debts and payments

List all of the debts, credit cards, store credit cards, payday loans, medical loans, and any other loan with high interest. Add up all the expenses and get the total amount you pay. The debt consolidation loan has to cover the whole amount of debt. 

Put down your budget and all your expenses to see what you can afford to pay monthly; the new loan has to be within your budget. 

3. Know what type of loan you need 

Once you decide to get the loan, you will be directed to a credit counselor that will help you identify the type of loan you need. Here are two types of loans you need to choose between. 

• Unsecured debt consolidation loans: Are any loan that does not require any type of collateral. This is the most common type of consolidation loan, though they typically charge higher interest rates. You get approved for this type of loan based on your creditworthiness, income, and debt to income ratio. Because there is no guarantor or collateral to back you up, you'll need to have a good credit score.
   
• Secured debt consolidation loans: Are loans that are secured by asset or property. Secured loans are normally easier to obtain if you have something to offer, but they are riskier since your assets may get seized if you fall behind on your payments. This is why you need to thoroughly research your budget to ensure that you can consistently make each payment on time. 

4. Compare debt consolidation companies

Not all debt consolidation companies are equal, which is why you need to shop around and compare the different companies you find. Each one has its own rates, terms, and qualification process. Online lenders, bank loans, and credit unions all offer debt consolidation loans. The most important aspect to look into is the company's trustworthiness; you could do so by checking their reviews and going by references. You need to read or talk to real customers to make sure it is legit. 

There are also different channels like the American Fair Credit Council, National Foundation of Credit Counseling, and Financial Counseling Association of America are all organizations you can use as references to see if the company is listed with them. 

You also want to consider the extra features they offer like financial dedication, flexible payments, and the payments reporting to major credit bureaus.

5. Prepare all your papers and apply

Once you've decided to take out a loan, gather all the documents you need; everything from proof of identity, address, and income are all the basic paperwork you'll need. 

Take the time to read the fine print on the loan document. Look for any extra fees that were not discussed, payment penalties, and the total cost you'll end up paying. 

If you don't meet the requirements of your preferred lender, consider adding a co-signer that has a good credit score. Getting a co-signer could help you qualify for a loan you wouldn't qualify for on your own.
 

Debt Consolidation Loan Companies 

1. CountryWide

CountryWide debt relief is a company that has been in operation since 2008, and they help their customers save money through debt settlements and consolidation. They are accredited by the American Fair Credit Council, which audits their members.
 

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Read our full review here

Get prescreened by answering a few equations that will show whether or not you are qualified to receive debt consolidation, and if they are the company that can help you pay off your debts.
 

2. National Debt Relief 

Is considered one of the best debt relief companies in the market and they are highly viewed and accredited by BBB with a ranking of A+. They offer different debt relief options including debt consolidation, and you can instantly get a free debt consolidation quote on their website. 
 

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National Debt Relief full review

They have helped over 100,000 families and individuals pay off their debts since they were first founded in 2008, paying off over $1 billion in unsecured loans.
 

3. Debt Rx

Debt Rx has proven to be trustworthy as it is A+ credited from the better business bureau and has over 25 years of experience. It offers debt settlement and consolidation plans tailored specifically for your financial situation.
 

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Debt RX full review

Their services help you regain control over your financial situation with the help of experienced debt counselors that have years of experience in this industry.