Today’s economy is one of the worst since the Great Depression. If you’re typical, you may be looking for a loan to help manage your debt. While a debt consolidation loan could be a good solution, you may be asking yourself, “will my credit be hurt by one of these loans from a bank?”
What is the definition of a debt consolidation loan
A debt consolidation loan is where you borrow enough money to pay off all your unsecured debts. In other words, it’s an opportunity to move your debt from a number of different creditors to just one. Your debt will become more manageable because you’ll have just one payment to make a month, which will be much lower than the total payments you are making now.
The advantages of a debt consolidation loan
A major advantage of a debt consolidation loan is that you will pay a much lower interest rate than you are now. For example, you may be paying interest rates as high as 18% or 20% on your credit card debt. In comparison, a debt consolidation loan could reduce that to 8% or even less. Plus, with a debt consolidation loan, you will have a lot more time to pay it off.
A debt consolidation loan makes your debt easier to manage because you have to make only the one payment a month. You will no longer have to worry about remembering to make five, seven or more payments a month to all your all your various creditors. This should also make it easier for you to create a household budget as you will need to budget for just the one payment a month at a fixed rate.
There are some criteria you have to meet in order to qualify for a debt consolidation loan. This is to make sure that you do not avoid paying on the loan, as it will be “unsecured.” This means you will not be pledging any asset such as the equity in your house to secure the loan. This leaves the lender at more risk so it will be very careful to whom it loans money.
To qualify for a debt consolidation loan, you’ll first need to be a U.S citizen. Second, you must be older than 18 years of age. This is to make sure you are an adult and can be legally responsible for the loan.
Also, you must have a monthly income that will allow you to pay off the loan fairly comfortably. This will be based on your net income or the amount of money left over after you pay your fixed expenses such as mortgage or rent and utilities.
Where to get a debt consolidation loan
Most banks and credit unions offer debt consolidation loans–generally called personal loans. It’s also possible to get one of these loans from an online source but this is an area where you need to be careful. There are some very unscrupulous companies out there just waiting to prey on the unwary.
A good solution
If you have the qualifications necessary for a debt consolidation loan, this could be an excellent way to pay off a large amount of debt. But the question remains, “will a debt consolidation loan from a bank hurt my credit?” The simple answer is “no.” If you can get a debt consolidation loan from your bank and make all the required payments, this can have a positive effect on your credit. In fact, you may get a higher credit score because you paid off all of your other debts.