Debt consolidation is the practice of paying your small debts with one large loan. Generally speaking, you can use a debt consolidation loan, a balance transfer credit card, or a home equity loan to consolidate your outstanding debts.
The idea of debt consolidation appeals to many consumers because it promises many intriguing benefits. After consolidating your debt, you only have to worry about one loan instead of several small payments. Companies like Symple Lending can also help you save money through debt consolidation by offering borrower-friendly interest rates. You can even improve your credit score by signing up for debt consolidation.
Of course, there are risks that come with consolidating your remaining debts. Learn more about those risks and how to minimize the threats they present by continuing with the rest of this article.
Get a Fixed Rate Debt Consolidation Loan
The first potential pitfall of debt consolidation is presented by accrued interest. The loan you’re using to consolidate your debt may have a variable interest rate. According to the Consumer Financial Protection Bureau, the fluctuating interest rates may cause you to pay more for your new loan than your older debts. The fees can also pile up and cost you a big chunk of change in the long run.
You’ll be glad to know that avoiding the aforementioned scenario is pretty easy. All you have to do is search for a debt consolidation loan with a fixed interest rate. These loans aren’t that difficult to find. You can even shop around for one until you find a loan with a fixed interest rate that suits your finances.
Remember to check the additional fees to ensure they don’t drive the cost of your payments too high.
Use Debt Consolidation Loans That Rely on Soft Credit Pulls
Consolidating your debt can positively affect your credit score as long as you make the payments on time. Those gains can accumulate and put your credit in a significantly better place after you complete your loan payments.
However, your credit score may also suffer initially if your lender requests a hard inquiry. If your finances are pretty tight at the moment, even a slight dip in your credit score can have a significant impact.
Experian notes that soft credit pulls have no effects on credit scores. A lender using soft credit pulls to evaluate your application can preserve your credit score and maintain your pathways to good offers. Look for those borrowers as you go searching for a debt consolidation loan.
Work With Lenders That Provide Debt Consolidation Loans Quickly
Lastly, you should look for lenders who can quickly disburse your debt consolidation loan. Lengthy processing time can cause issues with your outstanding debts. You may find yourself in a spot where you still have to pay your remaining debts because of the long processing time for the debt consolidation loan.
Partner with lenders like Symple Lending to avoid that difficult spot. Make sure your lender can release your loan quickly so your transition goes as smoothly as possible.
