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People have saved thousands by consolidating higher-interest debts using a single, personal loan, this will not negatively impact your credit.
If you are incurring penalties because of missed payments and need more breathing room, then a debt consolidation loan can help you tremendously.
For example, if you have three credit cards with interest rates of 12%, 18%, and 25%, you might be able to consolidate those three accounts into one loan with an interest rate of 10-15% – which would save you money.
Likewise, a debt consolidation loan can also lower your minimum payment, which is especially helpful for people who are having trouble making that payment every month.
And they often give you better interest rates than you would get from a bank.
For example, Lending Club, one of the most well-known peer-to-peer lenders, offers debt consolidation loans with interest rates starting at 6.78%, and makes loans of $1,000 to $35,000.
Many balance transfer offers give you a 0% interest rate for six to twelve months (after a 3-5% initial fee), which is great if you are able to pay off your debt in that timeframe.
But if you do not end up paying off your debt during the introductory 6-12 month period, you will usually be charged interest retroactively on the entire balance that you transferred – including whatever portion you had already paid off! what if you’re not sure you can pay off your debt in the next 6-12 months and you don’t have a mortgage (or don’t want to use your house as collateral)?
Most debt consolidation involves credit card balances or student loans, although it can also work for other types of debt.
Mortgage lenders often provide consolidation loans that use your home as collateral for your debt.
This type of loan is known as a Home Equity Line of Credit (HELOC).