Which types of debt are eligible for debt consolidation?

Consumers can apply for debt consolidation loans, lower interest credit cards, HELOC and special student loan programs. Of course, just because credit card debt is normal doesn't mean you have to accept that it will be a reality for you. You can create a solid plan to get rid of credit card debt, and debt consolidation could help you reach your goal sooner. You can also use a balance transfer credit card to pay off your outstanding credit card debt.

If you have good credit, you may be able to qualify for a balance transfer offer with a low or 0 percent interest rate for six, 12, or even up to 24 months. However, since the new balance transfer card is still a revolving account, you may not see as many credit rating benefits if you opt for this consolidation option. Private student loans are another type of debt that often makes sense to consolidate. Many students apply for a new loan each semester to help cover tuition, fees and other costs.

It's not unusual to accumulate up to eight or more student loans while earning a standard college degree. Keep in mind that consolidating federal student loans with private lenders may mean losing benefits such as income-based repayment. It may be worth keeping federal loans separate and consolidating only your private student loans. If you find that you have multiple student loans filling out your report, it's worth considering a consolidation loan.

You May Be Able to Get a Lower Interest Rate on a Student Loan Consolidation. If this happens, you could save a lot. The more money you owe on student loans, the more money you can save by consolidating a new loan with a lower interest rate. If you had consolidated your student loans into a single account, only one account would be declared past due.

While a late payment still wouldn't be good for your credit score, it would be less damaging than six overdue accounts. Credit cards and student loans aren't the only types of loans you may want to consolidate. Whether you're trying to simplify your finances or pay off debt faster, it might make sense to consolidate high-interest personal loans as well. With consolidation loans, a big mistake people often make is to keep accumulating more debt after using a new loan to combine their old balances.

This error can eventually lead to financial disaster. Fortunately, that's a mistake you can avoid if you determine ahead of time that new credit card debt is banned. An unsecured personal loan is the best way to consolidate debt because you don't have to put anything as collateral. The lender will base its decision on a number of factors, such as your credit score, income, employment status and existing debt.

Generally, you'll need a credit score between 580 and 700 to qualify. In general, you can only consolidate similar types of debt. While you can consolidate credit cards and student loans, you usually have to keep them separate. If you have multiple types of debt, you may need more than one debt consolidation plan.

Again, the details tend to vary depending on the type of debt you owe. Consolidation programs are most commonly seen with credit cards and tax debts. Borrowing is the most common and well-known form of debt consolidation. Essentially, you apply for a loan equal to the total amount of your current debts.

You use that loan to pay off all your debts at once, and then you focus on paying off the loan. Since loans tend to have much more lenient interest rates than most other forms of debt, especially credit card debt, a consolidation loan can help you save a lot of money over time. For homeowners, applying for a home equity loan (or a home equity line of credit) may be an attractive option for consolidating debt. Just make sure that this consolidation is part of a larger plan to get out of debt and you don't accumulate new balances on the cards you have consolidated.

If you're struggling to manage your debt, credit counselors can also set up a debt management plan. The types of loans that can be used for debt consolidation are unsecured personal loans, secured personal loans and home equity loans. Regardless of how you get rid of your debt, it's important to have a plan to achieve your goal. However, each lender will analyze your credit score, income, and debt-to-income ratio to determine how capable you are to repay your loan.

Not all debt consolidation loans require a credit score of more than 660, but you are unlikely to get worthwhile rates for consolidation with a lower score. For example, it's not worth consolidating if you can't get a lower APR on the new form of funding than what you're currently paying for your debts. By the end of the plan, you'll have paid off your debt and have a better idea of how to manage your own finances. You can also use other methods to consolidate debt, such as a balance transfer credit card or a home equity line of credit.

Debt consolidation can help your credit if you make payments on time or if consolidation reduces your credit card balances. If you are interested in a personal loan to consolidate debt, check out the free pre-qualification tool on WalletHub. Debt consolidation converts multiple debts, usually high-interest debts, such as credit card bills, into a single payment. .

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Jayne Kilbury
Jayne Kilbury

Professional music lover. Avid writer. Lifelong coffee ninja. Award-winning twitter guru. Total internet aficionado.

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