There are two types of debt consolidation loans:
- Secured loans are backed by a large personal asset like your home or car, which serves as collateral if you default on the loan.
- Unsecured loans don’t need asset backing, which makes them harder to obtain. Without collateral, the interest rates could be higher and there will be fewer options. But the interest rates are fixed, and you still will pay less in the end than if you tried paying off multiple loans on your own.
Since most lenders require a minimum credit score of 670, not everyone qualifies. Even if you are over 670, a negative payment history could spoil your chances for approval.
Debt consolidation loans for good credit scores
Let’s say you need a $35,000 debt consolidation loan and your credit score is in a healthy range between 740-799. You can expect an interest rate of around 10.99%. Here is what your monthly payments would look like:
$1146 for 36 months = $41,256 total cost over 3 years
$904 for 48 months = $43,392 total cost over 4 years
$761 for 60 months = $45,660 total cost over 5 years
$666 for 72 months = $47,952 total cost over 6 years
$599 for 84 months = $50,316 total cost over 7 years
Consolidating three credit cards into one low-interest loan
| Loan Details | Credit Cards | Consolidation Loans |
|---|---|---|
| Interest % | 28% | 12% |
| Payments | $750 | $750 |
| Term | 28 Months | 23 Months |
| Bill Paid/Month | 3 | 1 |
| Principal | $15,000 | $15,000 |
| Interest | $5441.73 | $1820.22 |
| Total | $20441.73 | $16,820.22 |
Tip:
If you have a good credit score, you can find a company that doesn’t charge an origination fee.
Debt consolidation loans for bad credit scores
If you don’t have a minimum credit score of 670, your interest rate would be too high for a debt consolidation loan to make financial sense. A low credit score is riskier to lenders, so they charge more fees and higher interest rates to compensate for that risk.
Without good credit, you can expect to pay a 1% to 5% origination fee. Plus, you could be charged interest rates anywhere from 29.95% to 35.99% or even higher.
If you don’t meet the qualifications for debt consolidation, National Debt Relief offers many other debt relief options and can help find the one that is right for you.
