Taking out a loan is the most common and well-known form of debt consolidation. Essentially, your new loan is equal to the total amount of your current debts. You use it to pay off all your creditors at once and then focus on paying down the new fixed payment. Since loans tend to have much more forgiving interest rates than most other forms of debt, especially credit cards, a debt consolidation loan can save you a great deal in interest over time.
Interest rates on debt consolidation loans typically range from 6 to 36 percent. The exact rate you will be offered is based on your unique financial history and credit profile. The best time to consider using a debt consolidation loan is when you want to reduce the interest rate on multiple credit cards and pay down balances faster. Another reason is if you are having difficulty staying on top of making payments to multiple creditors and prefer making only one monthly payment.
Requirements
You should be at least 18 years of age and not have any involvement in bankruptcy or foreclosure proceedings. Every lender will look at your credit score, income, and debt-to-income ratio to determine how capable you are of repaying the loan.
You need a minimum credit score between 580 and 680 to get a debt consolidation loan that offers reasonable rates, in most cases. If you also want to get one that does not charge an origination fee, you will likely need a credit score of at least 660, according to Wallet Hub.
Remember that the lower your credit score, the higher your interest rate will be since borrowers with poor scores pose a bigger risk of defaulting.