Debt consolidation is one of the best debt relief options that there is. If you’re struggling with debt, then you definitely need to think about whether a debt consolidation loan is for you. Since we’re commonly asked at Project Debt Relief what the best debt consolidation loans are, we thought that we’d break things down for you guys a little and clear up some of the confusion.
First of all, it is very important to understand that there is not one best debt consolidation loan for everybody. The best one for you will depend on your particular situation and overall goals. However, most people will be able to find their best debt consolidation loan by placing themselves into one of two categories: bad credit or good credit. But before we look at the best debt consolidation loans for bad credit and the best for good credit, we’ll first take a look at the different types of loans that there are.
Different Types of Debt Consolidation Loans
There are many different types of debt consolidation loans. Five of the most common include:
- Bank Signature Loan – You can take out this type of loan without any collateral. Because there is no ‘security’ on the loan, the interest rate on it is higher. However, it is also one of the easiest to qualify for.
- Peer-to-Peer Loan – This type of loan is based on the principle of peer-to-peer lending. Simply put, an unrelated individual loans you a small amount of money to pay off your debts. The interest rates on these can be quite high but ultimately they depend on your credit score.
- Credit Card Cash Advance – Like the two loans discussed above, this kind of loan is unsecured and the interest rates are high.
- Home Equity Loan – Basically the same thing as a second mortgage, a home equity loan is a great debt consolidation option that you can only take out if you have a home or other real property. The loan usually has a relatively low interest rate.
- Cash-Out Auto Refinance – This type of loan is similar to a home equity loan except that it puts your vehicle up against the loan as collateral. Similarly, it comes with a generally low interest rate.
Best Debt Consolidation Loans for People With Bad Credit
When you’re struggling with overwhelming debt, there is a good chance that you might also be struggling with bad credit. Unfortunately, bad credit and overdue debts is a bad combo. Luckily, however, there are some debt consolidation loans out there that were specifically crafted with people with bad credit in mind.
If you’re looking for a debt consolidation loan with bad credit, you might find that you’re turned down by your normal bank or credit union. That’s just the way things go. You need to look elsewhere.
Another common consolidation loan option that people with bad credit turn to are payday loans. Do not go with one of these. They are often fishy and full of numerous fees and there are plenty of better options out there anyways.
These better options include debt consolidation lenders, consumer credit counseling agencies, and debt relief companies. These companies are focused on offering debt consolidation loans to people that are also struggling with bad credit. Perhaps the best debt consolidation loan option out of the three are the loans offered by debt relief companies. These companies take your specific wants and needs into account and create a plan that is tailored to you. Better yet, bad credit debt consolidation loans are often what they cater specifically to.
Debt Consolidation Loans for People With Good Credit
It almost goes without saying, but it is so much easier to get a debt consolidation loan with good credit than it is with bad credit. In addition, there are a lot of options to choose from.
If you couple your good credit with a relatively high income and relatively low debt, there is a good chance that a bank or credit union will give you a debt consolidation loan. This is generally the best route to take especially if you stay disciplined and committed to paying your debt.
One of the best places for a debt consolidation loan for those with good credit is, once again, a debt consolidation lender or company. These professional companies can help make sure that you maintain good credit in the process of paying your loan and get the best deal possible.
In order to preserve your good credit score, it can also be a smart idea to consider alternatives to debt consolidation loans. A few of these include lending networks and credit card balance transfers.
Even if, at first glance, a debt consolidation loan seems like the answer to your financial problems, you really need to think things through. Debt consolidation loans while effective are not for everyone.
For instance, a debt consolidation loan is not for you if:
- Don’t have a budget plan in place
- Your debts were caused by overspending
- A loan will not change the underlying problem
Basically, you want to ensure that a debt consolidation loan is going to be a long-term fix and not a short-term one. If you can honestly say that it will put a stop to your problem for good, go for it. However, if it looks like it will just help in the short-term, then you need to look elsewhere. Debt consolidation loans can cause even more problems than they help if you don’t treat them the right one. Some of the most popular alternatives are credit counseling and debt settlement.