At a Glance

A debt consolidation loan can be an effective way of reducing monthly debt payments and interest rates that add up over time. However, taking the first step to get a debt consolidation loan can seem daunting if you have never heard of this type of loan or don’t know where to start. Follow this thorough guide describing who this loan is right for and how to obtain one if it works for your personal finances.

Is a debt consolidation loan right for you?

A debt consolidation loan can be extremely helpful, but it’s not necessarily right for everyone. If you are asking yourself the common question of should I get a debt consolidation loan? here are some crucial facts to consider that may indicate this type of loan would be beneficial:

  • You have many higher interest loans on a monthly basis
  • You have a high enough credit score to qualify
  • The underlying problems causing your debt are solved

When a debt consolidation loan is used effectively, it allows you to combine your various forms of debt into a single sum with a single interest payment each month. However, if you don’t have many high interest rate loans, have a lower than average credit score, or factors such as overspending are still increasing your debt, this loan may not be right for you.

Step-by-step checklist to get a debt consolidation loan

Assuming you have accurately determined a debt consolidation loan is right for you, here is the best way to get a debt consolidation loan:

1. Check your credit score

As mentioned, the first step towards learning how to get a debt consolidation loan is ensuring your credit score meets the requirements for the loan. Credit scores can range from 300-850 for most credit agencies, and a good score is generally considered to be 630-650 and above. While just over 60% of Americans have a good to excellent credit score on average, the remaining 40% have substandard scores.

Identify what your credit score is prior to applying for the loan. Different lenders will require different scores, making determining a minimum credit score to get a debt consolidation loan difficult, so doing this research will save you time from applying for a loan you don’t qualify for.

2. List details of your debts and payments

After ensuring your credit score meets the base requirement, it’s best practice to list out all forms of debt you have, the payments, and the interest rates associated with them. By adding up all credit card payments, payday loans, and other types of high interest loans you may have, you will know exactly how much to apply for with the debt consolidation loan.

3. Compare loan options from lenders

Once you have your credit score along with the sum total of all your debt and the interest rates, you can begin to look through different loan offerings. Traditionally, debt consolidation loans will come from banks, credit unions, or online lenders. To get a loan to consolidate debt, evaluate the various offerings from these sources and the interest rates they provide. Only after comparing all your options should you settle on a lender.

4. Apply

Finally, once you have settled on a lender, it is time to apply for the loan. You are going to need both personal and financial information for the application process. Items such as your current and previous address, sources of income, an automatic credit check, and more may all be required. Gather this information ahead of time to speed up the process for how to get a debt consolidation loan.

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5. Accept the loan and make payments

Once you are accepted by a debt consolidation loan provider, you will be granted the amount of money you sought from the loan. All that is left to do is accept the offer and start making monthly payments on this loan amount. Be sure to make all your payments on time and in full to avoid defaulting on your new consolidation loan.

Pros and cons of debt consolidation loan

As with all types of loans, there are both pros and cons to be aware of. By acknowledging these different types, you can further determine whether you want to apply for a debt consolidation loan.

Pros of a debt consolidation loan

  • Your debt repayments are simplified
  • One fixed monthly payment on the loan
  • Potentially a lower overall interest rate
  • The possibility to improve your credit with full payments

Cons of a debt consolidation loan

  • Depending on the interest rates you already pay, your new rate may not be lower
  • Will not fix the issue that is causing your debt in all cases

While there are both pros and cons when considering if it is good to get a debt consolidation loan, it is important to evaluate your own personal financial situation to make a final determination. Read more on these benefits and drawbacks here.

How to get debt consolidation loans with excellent credit

With excellent credit, you are likely to get approved for your consolidation loan assuming you have a stable source of income. Additionally, if you show you have a positive history with debt and are solely attempting to get the debt consolidation loan to reduce your number of payments, many lenders will be open to approving your loan application.

How to get debt consolidation loans with fair credit

When you only have fair credit, the debt consolidation loan process will be more difficult. Lenders will require you to have a stronger source of income that provides you with monthly income well above your monthly loan payment amounts. With that said, those with a fair credit score above 580 should still have a good chance of getting approved.

How to get debt consolidation loans with bad or poor credit

For those who have bad or poor credit, trying to simplify debts with this type of loan can be more difficult. Many lenders will request that you bring a co-signer on board, which is someone who will take responsibility for the loan if you default. You may also not be offered as favorable an interest rate when you have poor or bad credit. There are other options such as balance transfer cards, home equity loans, and other forms of debt consolidation available to you with poor credit. Read more to learn how to consolidate debt with bad credit.

Information to have before applying for a loan

There are a few pieces of information you will need prior to applying for the loan. These include but are not limited to:

  • Your age
  • Income level
  • Credit score and credit history
  • Any debts you have outstanding
  • Income and financial stability
  • Debt-to-income ratio

While different lenders may require different information, having the above on hand is an excellent starting point. Read more on the potential requirements used to determine eligibility for these types of loans.

Tips for getting approved for a debt consolidation loan

The primary tips for getting approved for a debt consolidation loan include preparing all necessary information ahead of time, choosing the best consolidation loan offer for your financial situation, and showing a strong history of debt repayments.

What should you do if your loan is not approved?

In the event you are not approved for your debt consolidation loan, there are other methods for consolidating your debt. Here are some potential options to consider:

  • Home equity loans
  • Balance transfer credit cards
  • Credit counseling programs
  • Cash out refinancing
  • Debt settlement

Above all, focus on improving your credit score and repayment history on current debt to increase your chances of being approved in the future.

Things to do after debt consolidation

Following the approval of your debt consolidation loan, there are a few crucial steps to follow to ensure successful repayment. Primarily, evaluate the terms of your new loan. Look at the repayment period you are offered to determine your monthly payments, as well as the expiration date on any introductory APRs.

Additionally, consider creating an emergency fund in the event your finances take a downturn and you need to be able to repay your loan with another source. Monitor all other forms of credit and the debt you retain following the debt consolidation to ensure you do not spiral into additional debt. For further steps to take after consolidating your debt, read the following article.

FAQs

Anybody can get a debt consolidation loan if they have a high enough credit score or meet the minimum requirements determined by a lender. Research all these requirements prior to applying for a loan to ensure the best chance of getting approved.

In general, a credit score in the 600s is what you should aim for when applying for a consolidation loan. However, certain lenders specializing in poor credit applicants will approve loan requests from borrowers with credit scores as low as 580.

Personal loans to consolidate credit card debt do exist and can be an excellent strategy. Assuming you have a strong credit score and credit history, applying for a personal loan can allow you to consolidate your debt.

Yes, getting a debt consolidation loan can affect getting a mortgage. This effect can be both negative and positive depending on when you choose to consolidate your debt. If done well in advance of taking out a mortgage, it can benefit you because it shows a better history of credit.

To get a consolidation with no-cosigner, you will need to have a high enough credit score and a strong credit history. It is also important to have a strong source of income to make repayments on the loan.

No, and in some cases, a personal loan may not be the best option for you. Other ways to consolidate debt include balance transfer credit cards, debt management programs, home equity loans or lines of credit, and others.