What is Debt Consolidation?

What is Debt Consolidation?

By: Elise Gray - Posted in:
Debt consolidation website explaining the ins and outs

When it comes to debt consolidation, most people are novices; especially once you get into debt consolidation tactics and the different debt consolidation options. Nobody seems to know how to consolidate debt. I’ve had many conversations with friends about debt relief options and every time I bring up debt consolidation it looks like I’m mentioning some mystical financial fairy godmother. So, what is debt consolidation?

I’m hoping to help you answer that. And don’t worry, you’re certainly not alone if you’ve ever asked yourself, “What is debt consolidation?” Not a lot of people understand what it is or how it works, so I’m here to help alleviate that with some necessary information. By the end of this article you’ll have an understanding of the following:

  • Debt consolidation tactics
  • How to consolidate debt
  • Debt consolidation options

All and all, we just want to ensure that you have deepened understanding of the debt consolidation definition. Consider this your debt consolidation 101 course. To understand what it means to consolidate something thing credit debt or a personal loan, one needs to understand the definition of debt consolidation and even credit card consolidation – we’ll get there.

WealthHunters’ Debt Consolidation Definition

Debt consolidation is the relocation of debt. Debt consolidation is also the process of when one applies for the sum of their total unsecured debts (credit cards, lines of credit, school loans, etc.) and pays them off with a lump sum from the new creditor with one monthly payment and one (generally) lower interest rate.

Why Should You Find Debt Consolidation Options?

For starters, you could be paying off your debt faster. Debt consolidation options help people get out of credit card debt, predatory auto loans, and student loan debt. If you’re still stuck on what the debt consolidation definition is, don’t worry. Debt consolidation is when one chooses to group all of their payments into one monthly bill. There are plenty of debt consolidation options available to you. Whether you want to consolidate it all into one personal loan or want to refinance your loan somewhere else, there’s an option available. The key is to avoid interest. It’s merely a numbers game.

What is Debt Consolidation Again?

The debt consolidation definition can vary, especially depending on who you’re talking about. Just know that debt consolidation options are all around you ––some in unconventional places, like the mail.  Do you ever get overloaded with credit card offers? Many people decide to move their debt from one credit card to another, which helps them avoid paying interest. Do what you’ve gotta do! If your credit score is high enough and you can get a no-interest for a year credit card, why not just do a balance transfer and start paying off chunks a little at a time? Plenty of people do it.

How to Consolidate Debt

Debt Consolidation Loan Web Page Image

Before you consolidate your debt, you’ll have to understand the different types of debt you carry. If you’re planning to consolidate your debt, you’ll want to focus on your unsecured debt, as you’ll generally want to refinance secured debt like cars or auto loans. Calculate the total sum of your payoff amounts. You’ll have to go to the “pay off” section of each card and loan. If possible, see if the calculator will generate a 10-day payoff. The payoff amount will change because of interest.

Reach Out For Help

If you have trouble finding the payoff amount online, you can always call the customer service line to find out what it is. Some loans do charge a fee for early pay-offs, so check for that. There are free services like Credit Sesame or Credit Karma to determine your balances.

Once you have the total of each pay off amount for your loans and/or cards, combine the amounts. The amount of your debt is the amount of money you’ll want to apply for. The next step is to find quality debt consolidation options.

Debt Consolidation Options

Some private lenders do not have to operate under the same laws that banks and credit unions do, and this is dangerous for your financial health. Financial regulations keep banks and credit unions from overcharging you, and even those seem to fall short at times. There is a legal maximum rate of interest for loads of different loans, so you have to be aware of this when you look for debt consolidation companies.

Do Your Research

Watch out for private lenders that charge outrages interest rates. More often than not, these types of lenders offer rates that can go up to 300% – I must be joking right? Unfortunately, no. My biggest advice when loan shopping is read everything. Attention to detail is one of the most important parts of personal finance. The fine print will talk about maximum interest rates, late penalty fees, and early pay off fees – pay attention. We’re doing this to get out of debt, not stay in it.

With caution in mind, here are some debt consolidation loans for borrowers with average credit:

Marcus By Goldman Sachs

With rates of 11-16% (based off approved credit), there is no origination fee, late fee, or prepayment fee. In fact, it appears that this company prides themselves off of their “zero fees” policy. One must have a minimum of 660 FICO® score to apply. They don’t take note of the desired debt-to-income ratio or income requirements.

Upstart

Upstart is one of a debt consolidation lender for fair credit holders. I will warn you; these loans are expensive with rates ranging from 7.8% – 29.99% APR. However, all of their loans are generated by Cross River Bank, which is FDIC insured (federally approved). At present, Upstart uses a blend of the applicant’s FICO score, the area of study, education, job history via artificial intelligence. They do have an origination fee that totals anywhere from 1% to 6% of loan amount, so take note of that. Late fees are roughly 5% of payment amount.

LendingClub

LendingClub uses investors through their online marketplace to connect borrowers with funding. If approved, LendingClub uses WebBank (a member of FDIC) to handle the transaction. However, their rates are a tad high, as they range from 14.5 to 32.7%. The best rates go to people with better scores, so it’s wise to do your homework on this one. They also feature an origination fee that totals anywhere from 1% to 6% of loan amount, so take note of that. Late fees are also 5% of payment amount. If your score is a minimum of 600, you can apply.

Defining The Debt Consolidation Definition

All in all, what is debt consolidation? The debt consolidation definition when someone decides to make debt work for them, not against them. We hope that you’ve found the above debt consolidation options helpful and look forward to assisting you. The next time you talk to someone who doesn’t know how to consolidate debt, send them here!

Source:
Nerd Wallet: Personal Loans: Estimated Offers for $5,000

Disclaimer:
Your loan terms are not guaranteed and are subject to our verification of your identity and credit information. To obtain a loan, you must submit additional documentation including an application that may affect your credit score. Rates will vary based on many factors, such as your creditworthiness (for example, credit score and credit history) and the length of your loan (for example, rates for 36-month loans are generally lower than rates for 72-month loans). Your maximum loan amount may vary depending on your loan purpose, income, and creditworthiness. Your verifiable income must support your ability to repay your loan. Marcus by Goldman Sachs® is a brand of Goldman Sachs Bank USA, and all loans are issued by Goldman Sachs Bank USA, Salt Lake City Branch. Applications are subject to additional terms and conditions.

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