It All Adds Up: Debt Consolidation Calculator
The proof is in the pudding. Seeing is believing. Less talk, more show. Whatever saying you prefer, we get ityou want to know exactly how much you could be saving and how fast you can be debt-free. Well, were here to help!
Just answer a couple of quick questions about your credit situation and our Debt Calculator will give you your results instantly.
Still wondering How can I consolidate my debt? Dont hesitate to call usits completely free and confidential.
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Is Debt Consolidation Right For You
Debt consolidation can affect your credit score both positively and negatively, but its important also to consider other benefits. For example, transferring a credit card balance could temporarily increase your utilization rate, but the interest savings from a 0 percent APR promotion could have a more lasting positive impact on your overall financial health.
Consider your situation and your options carefully, and pick the one thats best suited to your needs. And whatever you do, remember that debt consolidation is just a means to an end: becoming debt-free.
How A Balance Transfer Credit Card Can Affect Your Credit
Because of its 0% interest from 6 to 18 months, a balance transfer credit card is a great way to pay off debt, especially if that debt had a high interest rate. Keep in mind that applying for a balance transfer credit card will show up as a hard inquiry on your report and can also reduce the age of your credit accounts, bringing down your credit score slightly. But it will benefit you in the long run, and you can easily increase your score later on.
However, the old adage of debt still applies: Any time you miss a payment, you hurt your credit score. So if you consolidate your debt by transferring credit card balances, you shouldnt have any credit damage unless you miss a payment.
Unfortunately, some people get into bigger trouble with debt after they consolidate. Why? Because once the debt is consolidated, youll have zero balances on all of your credit cards. It can be really tempting to start spending before you pay off the consolidated debt.
Always finish paying off consolidated debt before you start charging again. Otherwise, you can have a real mess on your hands and can ruin your credit in the process.
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How A Personal Consolidation Loan Can Affect Your Credit
Since this falls into the credit category, applying for a personal consolidation loan will result in a hard inquiry on your credit report. As a result, your credit score may decrease by a few points.
Getting a new loan can also decrease your credit age, which measures the average age of all your accounts. But how much it decreases your score depends on how many other accounts you have and the age of each of those accounts. The more, old accounts you have, the less a new account will decrease your credit age. This factor accounts for 15% of your score.
Luckily, loans do not affect credit utilization, which comprises 30% of your overall credit score. Getting a loan wont drive up this ratio.
And if you manage the personal consolidation loan effectively by making payments on time, your credit history and score will be in good standing. Conversely, missing payments will have the opposite effect. Credit history is the biggest factor in credit score, carrying 35% of the weight in your score. As a result, any missed loan payment would have a serious negative impact.
Debt.com can help you find the best option to consolidate debt.
You May Pay A Higher Rate
Your debt consolidation loan could come at a higher rate than what you currently pay on your debts. This could happen for a variety of reasons, including your current credit score.
Consumers consolidating debt get an interest rate based on their credit rating. The more challenged the consumer, the higher the cost of credit, says Michael Sullivan, personal financial consultant for Take Charge America, a nonprofit credit counseling and debt management agency.
Additional reasons you might pay more in interest include the loan amount and the loan term. Extending your loan term could get you a lower monthly payment, but you may end up paying more in interest in the long run.
As you consider debt consolidation, weigh your immediate needs with your long-term goals to find the best solution.
Takeaway: Consolidation does not always end up reducing the interest rate on your debt, particularly if your .
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How Much Does Debt Consolidation Affect Your Credit Score
Lets start by looking at your current credit score. If youre struggling every month to make payments to your lenders, then you may probably just be focusing on making ends meet. Chances are, you might not even be thinking about your credit score. However, being in persistent debt or failing to make payments may have a negative effect on your score.
Its hard to think about the future if youre struggling with the now. Yet, having a bad credit score may make it challenging to get financial products. This means, should you choose to apply for a mortgage, loan, or any form of credit, your poor score will increase the chances of you being refused.
In this situation, debt consolidation could be a great way to get your finances back on track and also ultimately benefit your credit score. It also should be better for your credit than many other debt solutions out there.
Debt consolidation may help you to get your finances back on track. It may also indirectly benefit your credit score in the long term this is because if you are able to get your finances under control and are no longer in debt to creditors, your credit score may start to improve in the long term.
Considering a debt consolidation loan to repay your creditors and get back in control of your finances? The good news is this option can be a great solution depending on your circumstances, However, its important to identify just how a consolidation loan will affect your credit score.
Is Debt Consolidation A Good Idea
Here are a few signs that consolidating your debt might be a smart financial move.
Only you can decide if debt consolidation is the right choice for your current financial situation. But considering some of the pros and cons of debt consolidation may make your decision a little easier.
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Debt consolidation could reduce the amount of money you pay in interest. The average rate on an interest-assessing credit card is 14.75%. Meanwhile, the average interest rate on a 24-month personal loan is 9.46%, according to the Federal Reserve.
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Consolidating your debt might improve your credit. When you reduce your credit utilization ratio and the number of accounts with balances on your credit reports, your credit scores might benefit.
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You only have to make one monthly payment to your new lender. This is easier to manage than multiple payments on various accounts.
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It Could Tempt You To Close Accounts
If youre going through the debt consolidation process, it could feel good to close your old accounts after a balance transfer or getting a new loan. But be careful. Closing a credit account could decrease your average age of accounts or drive up your credit utilization ratio. Both of these actions can hurt your credit score.
After you complete your debt consolidation process, consider leaving your old credit accounts open but with zero balances. Keeping those accounts open and on your credit report can be good for your credit score, so long as youre not tempted to use them to rack up more debt.
Will Consolidating Debt Damage My Credit
Debt consolidation can help simplify your financial situation, save you money on interest and even improve your credit over time. Consolidating your debt can, however, also bring with it some temporary negative effects.
Before you take a step toward debt consolidation, it’s essential to understand how it might impact your credit and what you can do to ensure long-term success.
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Diversity Is Strength: Debt Consolidation And Credit Mix
Many people use debt consolidation to address high levels of outstanding credit card debt. This makes total sense, as the average American household is carrying from month to month. A balance that high leads to a significant amount of interest expenses each month, so its not surprising that debt consolidation is such a popular option these days. However, using a debt consolidation loan to dispense with high credit card balances can sometimes help borrowers improve their overall credit as well.
Broadening your credit portfolio wont improve your overall credit rating considerably, however. Credit mix only comprises about 10% of your credit score increasing the types of debt youre carrying may give you a modest boost, but it wont significantly improve your standing in the eyes of the three credit bureaus. Additionally, if youre already carrying multiple types of debt, a debt consolidation loan may do little to help diversify your credit and will likely have negligible effects on your overall credit mix.
Does Consolidating Debt Hurt My Credit
Lets face it, if youre looking into a debt consolidation, chances are your credit has already taken more hits than Rocky Balboa. But like Rocky, you can come out a winner. How? Why, with a Debt Consolidation Program, of course!
A Debt Consolidation Program, when followed and completed successfully, will actually improve your credit in the long-run by properly addressing your debt. Plus, once you’re completely debt-free your counsellor will put you on the fast track to rebuilding your credit.
Some of the blows delivered to your credit report are likely due to the following 3 factors. Here they areand heres how a Debt Consolidation Program can help.
Payment History
Many individuals seeking debt relief have accounts in collections or accounts with missed or late payments. With a Debt Consolidation Program, you only have to make one payment per month to pay all your creditors, making it easier to manage and less likely to be missed.
This is your available credit versus the credit youve used. To maintain a good score, this figure should be at or below 30 percent however, most people in debt-distress are already over, at, or near their limits. Luckily for you, once you’re on a Debt Consolidation Program you stop using credit , so you automatically stop causing more damage.
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The Debt Avalanche Method
The debt avalanche method is an approach to paying off debt that, if done properly, can accelerate your debt payoff and save you money along the way.
This strategy has you make just the minimum payment on all of your debts except for the one with the highest interest rate, to which you’ll put as much as you can. Once that debt is paid off, take all the payments you were making toward it and apply them to the account with the next-highest interest rate until it’s paid off.
Repeat this process until all of your debts are paid in full. Because it targets your high-interest debts first, the debt avalanche method can save you more on interest charges than other payoff methods.
You May Want To Consider Student Loan Consolidation If
- You want to simplify your life with a single monthly payment. If youre tired of juggling several loan payments at once, debt consolidation can make sense. Once you consolidate, youll have a single loan payment to make and keep track of each month.
- You can get a lower interest rate with a private lender. If your student loans are at high interest rates and you think you can get a better deal, you may save money by getting a new loan with a lower interest rate. Keep in mind, you can find out how much you can save by exploring student debt consolidation options on LendingTree.
- You want to lower your monthly payment. If the monthly payment on your current loans is too high, debt consolidation can help. Most of the time, you can lower your monthly payment by extending your repayment timeline. Keep in mind, however, that you may pay more interest the longer you extend your loans even if your interest rate is lower.
- You want to pay down your loans faster. While debt consolidation doesnt guarantee early repayment, it can make the process easier. With a single monthly payment to worry about, it might be simpler to focus on repayment and come up with extra funds to pay toward your loan principal each month. You may be able to pay down your loans especially fast if you get a lower interest rate, too.
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How Does Loan Consolidation Improve My Credit Score
When consolidating student loans, a number of factors credit score variables are modified. Most of these changes improve a borrowers creditworthiness, according to the credit bureaus.
One factor that determines credit score is the number of lines of credit that are open. If consumers have too many, their score will go down. By consolidating your student loans, many student loans are replaced with one new loan. The borrower still has the same amount of debt, but the number of lines of credit goes down, thus raising the credit score.
Another credit score advantage of student loan refinancing is that many loans will show as paid in full. It shouldnt come as a surprise that a record of debt repaid is a good thing. Depending upon how the loans are consolidated, it could read that the loans were refinanced, or it could just say that they were paid in full. Either way, the credit score goes up.
One final advantage of consolidating student loans is that it can often lower your monthly payments. This helps borrowers who are looking for new lines of credit as it will improve their deb-to-income ratio. This especially helpful for those trying to secure a mortgage.
Evaluate Student Loan Repayment Options
How you repay your loans depends on three things: the type of loans you owe, how much you can afford to pay, and your money goals.
Financial goals are different for everyone, says Joe DePaulo, CEO, and co-founder of College Ave Student Loans. Some may want a longer repayment plan that allows more flexibility in their monthly budget, while others may opt for a repayment plan that allows them to pay off their student loans as quickly as possible.
There is a range of student loan repayment options to consider. If you need flexibility and you owe federal student loans, you might look at an income-driven repayment plan. There are several choices that calculate your monthly payment based on your income and household size and allow you more time to repay your loans than youd get on a standard 10-year repayment plan.
On the other hand, if you want to repay your loans as quickly as possible, you might want to stick with a repayment plan that has the shortest term. The trade-off is that youll have a higher monthly payment. The best way to evaluate loan repayment options is to use a loan repayment calculator, such as the one offered by the Department of Education.
Income-driven repayment plans can offer loan forgiveness after a set number of years, but any forgiven loan balance may be treated as taxable income.
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Using A Personal Loan
A personal loan is an unsecured loan from your bank, which is generally used to consolidate debt or make a big purchase. If you’re using it to pay down debt, the strategy works like this: you use the loan to pay off all your credit card balances and then focus on eliminating the loan balance.
Consumers who take out personal loans pay down nearly 60% of their credit card debt on average, TransUnion finds, which brings the average balance down from $14,015 to $5,855.
But these loans don’t universally offer cheaper interest rates. And like all loans, you’ll need to apply and get approved. So if you have bad credit, you may risk getting declined, or approved with a high interest rate. On average, those with credit scores below 680 will be paying higher interest rates for a personal loan than the average credit card APR of 16.97%, according to an analysis by loan marketplace Credible.
For personal loans, the rate not only depends on your credit, but also on the length of the loan, as shorter loans tend to have lower APRs. If you feel that paying off your debt will take longer than three years, you may be subject to a higher rate, Credible finds.
Even if you do find a low interest rate loan, you also need to look at all the numbers, Roberge tells CNBC Make It. That’s because taking out a loan could come with origination fees, and paying those expenses could cancel out any savings you might generate by having the loan be at a lower interest rate than your credit card, he adds.
More Information About Debt Consolidation Loans
Debt Consolidation loan Interest Rates
Banks and credit unions usually offer the best debt consolidation loan interest rates. Many factors can help you get a better interest rate, including your credit score, your income, your net worth, whether or not you have a relationship with that financial institution and whether or not you can offer good security for a loan. Good security for a debt consolidation loan will often be a newer model vehicle, boat, term deposit or another asset that can easily be sold or liquidated by the bank if you dont make your loan payments.
For the past decade, banks have typically charged interest rates on debt consolidation loans of around 7% 12%. Finance companies tend to charge anywhere from 14% for secured loans to 49% for unsecured loans. Interest rates for consolidation loans heavily depend on your situation.
How to Qualify for a Debt Consolidation Loan
How to get a debt consolidation loan is a qualification process. Each lender has slightly different rules to follow, but typically, what is required to qualify for a consolidation loan includes:
If you dont quite meet all of these requirements on your own, you may still be able to qualify if you can find a good co-signer.
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