Does a situation like this sound similar to you? Well, then debt consolidation might be the ticket. Let’s check why this time it’s the best way to consolidate credit card debt.
Think of debt consolidation as a loan that combines all your debts into one single payment. Essentially, it simplifies the repayment process. Yet, once you decide to go for it, get ready it may change your interest rate, payback period, and overall cost. It makes the most sense for borrowers who can score a lower interest rate than what they’re currently paying. Also, it works well for borrowers with over $15,000 in debt.
Consolidation loan works to help you pay off various bills to combine your debt into one payment. Important to note that there are two types of debt consolidation loans – secured and unsecured.
It’s obvious, a secured loan is backed by something valuable like a car, home or savings. Consolidating debt by a secured loan reduces the risk for the lender, as the latter has the right to take possession of the asset if you fail to repay it. Indeed, this might be one of the key reasons why secured loans are less popular in the online lending space.
On the flip side, an unsecured loan is not tied to collateral such as a car or home. Usually, your signature is enough to secure funds. How to eliminate credit card debt with an unsecured loan? Well, quite simple. No need to step into a physical location. Multiple online lenders offer unsecured personal loans online.
Depending on what lender you choose to eliminate debt, the checking process may vary. Generally, a lender reviews your credit history, verifies your income and employment, also may ask for other documentation. The best thing is that unsecured loans are available for borrowers with good credit as well for those with a score in the low 600s. Yet, here’s a trick – since it’s more of a risk to the lender, the lower the score, the higher the interest rate.