Best Debt Consolidation Loans of 2021

Life can feel overwhelming when you’re saddled with loads of debt from different creditors. Maybe you carry multiple credit card balances on top of having a high-interest personal loan.

Or maybe you have a loan with an adjustable-rate and your payments are starting to rise each month, making your budget more and more uncomfortable.

In these situations, it may be wise to look at a debt consolidation loan. For some people, it’s a smart choice that gets your debts organized while potentially lowering your monthly payments. Ready to learn more? Let’s get started.

Best Debt Consolidation Loan Lenders of 2021

We’ve compiled a list of the best debt consolidation loans online, along with their basic eligibility requirements. Research each one carefully to see which one can help you with your debt consolidation.

Different lenders are ideal for different borrowers. Review these options and take a look at which ones best suit your needs as well as your credit profile. Once you have your own shortlist, you can get prequalified to compare loan options and find the best offer.

DebtConsolidation.com

Since 2012, DebtConsolidation.com has worked with borrowers to find the best debt consolidation service for their unique situation. If you are not really sure where to get started with your debt repayment process, then this is a good place to start.

The company offers many resources, tools, and relief programs on how to get out of debt quickly. Wherever you are at on your debt repayment journey, they may be able to help.

After you provide some information about your debts, the website will present the best way forward. You may be matched to debt consolidation loans, debt settlement companies, or credit counseling depending on your individual situation.

You can easily compare several different options through this service which is a great way to start your debt repayment journey off right!

It is completely free to use their services. However, when you are matched to a partner, the partner may charge fees for their services. Always make sure to understand the exact terms of your debt consolidation loan before moving forward with any company.

Marcus by Goldman Sachs

If you’re looking for an online-only lender, then Marcus by Goldman Sachs may be the right choice for you. Marcus offers personal loans that can be used for debt consolidation.

If you have a credit score of 660 or higher, you may qualify for a personal loan between $3,500 and $40,000. The APR range is between 6.99% and 28.99%.

One of the best things about taking out a loan through Marcus is how transparent the bank is. There are no hidden fees and that includes late fees, which is pretty rare among other lenders.

Plus, the bank gives you the option to choose your own payment due date. After making 12 months of consecutive payments, you can defer one monthly payment if you want.

The only real downside is that you’ll need good to excellent credit to qualify. And Marcus won’t let you apply with a co-signer.

Read our full review of Marcus

Avant

Avant is designed for borrowers with average credit or better and offers a number of perks for debt consolidation loans.

You can get help with your debt management by getting free access to resources, plus you receive regular updates on your VantageScore to track your credit repair process.

In fact, the average borrower using the funds for debt consolidation sees a 12-point increase within the first six months. So who can get a loan through Avant?

Most borrowers have a credit score between 600 and 700. While you don’t need to meet a minimum income threshold, most customers earn between $40,000 and $100,000 each year.

One of the great things about borrowing with them is that once you are approved and agree to your loan terms, you can get funding in as little as a day. This is a great benefit if you have a number of due dates coming up and want to get started paying off your current creditors as soon as possible.

Their loan terms range anywhere between two and five years, so you can choose to either pay off your debt aggressively or take the slow and steady route.

Read our full review of Avant

Payoff

If you have fair to good credit, you may be eligible for a debt consolidation loan from Payoff. The company offers debt consolidation loans with competitive rates and flexible repayment terms. Payoff focuses on helping borrowers pay down their high-interest credit card debt.

Payoff does this by providing debt consolidation loans between $5,000 and $35,000. The APR range is between 5.99% and 24.99%, depending on your credit score. The repayment terms will be between two and five years.

One of the advantages of taking out a debt consolidation loan through Payoff is the additional support they provide. Payoff doesn’t just want to help you repay your debt; they want to help you build a solid financial future.

The lender will provide financial recommendations, tools, and resources to help you stay on track. This will help you meet your short-term goals and build positive long-term financial habits.

Read our full review of PayOff

Upstart

Upstart’s target borrower is a younger person with less established credit. So maybe you don’t have a problem with bad credit, but you have a problem with no credit. When you apply for an Upstart loan, more emphasis is placed on your academic history than your credit history.

Upstart will review your college, your major, your job, and even your grades to help make you a loan offer. The minimum credit score is 620. Most borrowers are between 22 and 35 years old, but there are no technical age restrictions.

However, one requirement is that you must be a college graduate, which obviously limits the applicant pool. And while loan amounts range up to $25,000, you only have one term option: three years.

Upstart doesn’t offer the most flexibility with its debt consolidation loans. However, they have competitive rates and a unique approval model that may help some borrowers who want a loan.

Read our full review of Upstart

PersonalLoans.com

PersonalLoans.com directly helps individuals with low credit scores so this is a great place to come if you’re still in the credit repair process.

However, there are a few restrictions: you cannot have had a late payment of more than 60 days on your credit report, a recent bankruptcy, or a recent charge-off. But if you meet these basic guidelines, PersonalLoans.com may be a good option for you.

PersonalLoans.com is unique in that it’s a loan broker, not an actual lender. Through the application, you’ll get offers from traditional installment lenders, bank lenders, and even peer-to-peer lenders.

Your actual loan agreement that you choose is signed between you and the lender, not PersonalLoans.com. This provides a convenient way to compare rates and terms through just a single application process.

Read our full review of PersonalLoans.com

LendingClub

LendingClub is a peer-to-peer lender. That means rather than having your debt consolidation loan funded directly by the lender, your loan application is posted for individual investors to fund.

Additionally, your interest rate and terms are determined by your credit profile. The minimum credit score is just a 600, but the average borrowers is higher.

LendingClub boasts competitive rates; in fact, its website claims that the average debt consolidation borrower lowers their interest rate by 30%. You can use the website’s personal loan calculator to determine how much you could actually save by consolidating your debt.

There’s also a large-cap on loans, all the way up to $40,000. That’s on the higher end for many online lenders, especially those open to individuals with lower credit.

Read our full review of LendingClub

Upgrade

Upgrade appeals to all different types of borrowers. When assessing a new borrower, the lender considers various factors, including their credit score, free cash flow, and debt-to-income ratio.

The company offers personal loans that can be used for many different purposes, including debt consolidation. Upgrade will even make payments directly to your lender for added convenience.

If you have a minimum credit score of 600, you may qualify for a personal loan between $1,000 and $50,000. When you apply, the lender will do a soft pull on your credit so it won’t affect your credit score.

Upgrade is one of the best options for borrowers with poor credit and borrowers with a high debt-to-income ratio. And the lender offers a hardship program, so if you fall on difficult times financially, you may receive a temporary deduction on your monthly payments.

Read our full review of Upgrade

Discover

Discover offers personal loans for borrowers with good to excellent credit. You can use a personal loan from Discover to consolidate your existing high-interest credit card debt.

If you qualify, you’ll receive a personal loan between $2,500 and $35,000. The APR range is 6.99% to 24.99%. And the bank never charges any origination fees.

You must have a minimum credit score of 660 to qualify, so Discover isn’t a good option for borrowers with bad credit. And unfortunately, Discover doesn’t give borrowers the option to apply with a co-signer.

Read our full review of Discover

OneMain

With an A+ rating from the Better Business Bureau, OneMain is a lender committed to customer satisfaction. While they offer debt consolidation loans up to $25,000, you can also get a loan for as little as $1,500.

This is one of the lowest loan minimums we’ve seen, which is perfect if you have just a small amount of debt you’d like to consolidate because of exorbitant or adjustable interest rates.

In addition to applying online, you can also elect to meet with a financial adviser at a OneMain branch location.

In fact, part of the application process entails meeting with someone either at a branch or remote location to ensure you understand all of your loan options. This is a great step that most online lenders lack, allowing you to really take the time to weigh your options and decide which is best for you.

Read our full review of OneMain

Best Debt Settlement Companies of 2021

Taking out a debt consolidation loan is just one option when you want to lower your monthly payments. Another way to go is enrolling in a debt settlement program. Rather than paying off your lender in full, a debt settlement company can help negotiate an amount to repay so that the debt is considered settled.

In the meantime, you agree to freeze your credit cards and deposit cash each month into an account that will eventually be used to pay off the settlement.

However, the downside is that to make this strategy work, you must stop making payments on your owed amounts, which will cause them to go into default. That means your credit score will take a nosedive. But, the goal is to pay less than what you owe.

If you have enough debt that it seems impossible for you to ever repay, debt settlement might be a better option than filing for bankruptcy. Below are Crediful’s top two picks for debt settlement companies. You can find the full list here.

Accredited Debt Relief

Accredited regularly works with major banks and lenders to help clients negotiate settlements. These include Bank of America, Wells Fargo, Chase, Capital One, Discover, and other financial institutions of all sizes, both large and small.

They’ll even work with retailers if you have store cards with major balances. While results vary from person to person, they offer examples of clients saving anywhere between 50% and 80% on their amounts owed.

Read our full review of Accredited Debt Relief

National Debt Relief

National Debt Relief has an A+ rating with the Better Business Bureau and prides itself on trying to help those who truly have financial hardships in their lives.

One benefit of working with this company is that your funds are held in an FDIC-insured account that is opened in your name.

That means you have full control over the account and don’t run the risk of being scammed out of your money — you can rest assured that National is a reputable company.

Plus, the team is fully versed in consumer and financial law so you can trust that your interests are being served to the fullest legal extent possible.

Read our full review of National Debt Relief

What is debt consolidation?

Debt consolidation allows you to pull all of your smaller existing debts into one new debt that you pay each month. When you take out a debt consolidation loan, you receive funds to pay off all of your existing debt, like your credit card balances and high-interest loans.

You then make a single monthly payment to your lender, rather than making multiple payments each month. Keep in mind that this is different from debt settlement in that you’re not negotiating a new amount owed. Instead, you keep the same amount of debt but pay it off in a different way.

Depending on your personal situation, debt consolidation loans come with both pros and cons. It’s important to weigh both sides carefully before deciding if a debt consolidation loan is right for you.

Let’s delve into the details so that you can get closer to making a decision.

credit cards

Advantages of Debt Consolidation Loans

There are a number of advantages and disadvantages associated with debt consolidation loans. We’ll go over all of them so you can weigh your options.

Lower Your Monthly Payments

The biggest benefit of a debt consolidation loan is the ability to lower your combined monthly payments. Because interest rates on credit cards are so high, it’s possible that you can find a lower interest rate on a debt consolidation loan instead, which means lower payments.

However, your actual interest rate depends on several factors, especially your credit score. It’s important to compare interest rates and the total cost of the debt consolidation loan to your current payments to make sure you don’t end up paying more over time. The goal is to save you money.

Improve Your Credit Score

Another advantage of taking out a debt consolidation loan is that it can actually help increase your credit score. While your amount of debt stays the same, installment loans are viewed more favorably than credit card debt.

So if the majority of your debt comes from maxed-out credit cards, you could potentially see a rise in your credit score because your credit utilization on each card has gone down.

A debt consolidation loan streamlines your monthly payments. Rather than being inundated with multiple due dates each month, you simply have one to remember. This also contributes to building a healthy credit score because it lowers your chance of having a late payment.

Disadvantages of Debt Consolidation Loans

In some cases, debt consolidation loans might not be a great idea. We talked about the total cost of the loan, which needs to be reviewed holistically, not just as a monthly payment. This is true for several reasons.

Origination Fees

First, most lenders charge some sort of fee when you take out a new loan. The most common is an origination fee, typically charged as a percentage of the total loan amount.

So if you have a loan amount of $10,000 and there is a 4% origination fee, you’ll only actually receive $9,600. Next, compare interest rates and loan terms.

Even if the monthly payments look good on paper, you may be paying a lot more over an extended payment period. You can use the APR to compare interest rates and fees, but you also need to consider how much you’ll spend on interest over the entire loan term.

Changing Your Spending Habits

Finally, it doesn’t necessarily fix the root problem of your debt.

This isn’t something you need to worry about if your debt results from a one-time incident, such as an expensive medical procedure or temporary job loss. But if you habitually spend more than you earn and are still incurring new debt, then debt consolidation loans will not help you in the long run.

If this sounds like you, try to figure out how you can curb your spending to stop accruing more debt. You can even talk to a debt counselor to help create a sound management plan for your finances.

See also: Debt Consolidation Loans for Bad Credit

Source: crediful.com

A Guide to Consolidating and Refinancing Student Loans

  • Personal Loans

Student loan consolidation and refinancing can help you manage your debts, reducing monthly payments, creating more favorable terms, and ensuring you have more money in your pocket at the end of the month. 

Get approved fast for a Personal Loan!

Compare multiple loan options from the nation’s top lenders.

Attention: Still Open During the Financial Crisis…

Tip: Apply now to see if you qualify for a personal loan today!

But how do these payoff strategies work, what are the differences between private loans and federal loans, and how much money can consolidation save you?

Private and Federal Student Loan Consolidation

Federal student loan consolidation can combine multiple federal loans into one. Private consolidation can combine both federal loans and private loans into a new private loan. The act of consolidation can improve your debt-to-income ratio, which can help when applying for a mortgage and greatly improve your financial situation.

Which Loans Qualify for Student Loan Consolidation?

You can generally consolidate all student loans, including Federal Perkins loans, Direct loans, and other federal loans, as well as those from private lenders. You cannot consolidate private loans with federal loans, but you can consolidate them with other private loans.

What Should you Think About Before Consolidating Student Loans?

Consolidating isn’t just something to consider if you’re struggling to meet current terms. In fact, private lenders often require a minimum credit score in the high-600s and you’ll also need to have a stable income (or a cosigner) and a history of at least a few punctual payments.

Federal student loans are a little easier to consolidate and available to more borrowers, including those looking to qualify for income-based repayment or student loan forgiveness schemes.

In either case, it can reduce your monthly payments, making your loans more manageable.

How to Consolidate Private Student Loans

Some of the private lenders offering this service include:

  • LendKey
  • Citizens One
  • CommonBond
  • SoFi
  • Earnest

The rate you receive will depend on your credit score and whether you opt for a variable interest rate or a fixed interest rate, but generally, they range from 3% to 8%. Each lender has their own set of terms and requirements, but they’ll often require you to:

  • Be at least 18 years old
  • Have no more than $150,000 in debt
  • Be the main borrower (not the cosigner)
  • Complete a credit check

The lender will run some basic checks to determine your creditworthiness before offering you a consolidation sum that will clear your debts and leave you with a single monthly payment. There are different types of private loan depending on whether you’re applying to consolidate just private loans or both federal loans and private loans.

If you only have federal loans, you should apply for federal student loan consolidation instead.

What Will I Pay?

The main goal of student loan consolidation is to reduce your monthly payment. If you have a strong credit score you can get a reduced interest rate and may even benefit from a reduced repayment term. However, as with most forms of consolidation, it’s all about reducing that monthly payment, improving your debt to income ratio and increasing the money you have leftover every month.

Shop around, consider all loan terms carefully, run some calculations to make sure you can meet the monthly payment, and compare repayment options to find something suitable for you.

Don’t feel like you need to jump at the first offer you receive. A personal loan application can show on your credit report and reduce your credit score by as much as 5 points, but multiple applications with multiple private lenders will be classed as “rate shopping”, providing they all occur within 14 days (some credit scoring systems allow for 30 or 45 days).

How Federal Debt Consolidation Loan Works

Federal student loan consolidation won’t reduce your interest rate, but it does make your repayments easier by rolling multiple payments into one and there is no minimum credit score requirement either.

When you consolidate federal student loans, the government basically clears your existing debt and then replaces it with a Direct Consolidation Loan.

You can consolidate directly through the government, with the loan being handled by the Department of Education. There are companies out there that claim to provide federal student loan consolidation on behalf of the government, but some of these are scams and the others are unnecessary—you can do it all yourself.

You can apply for consolidation once you graduate or leave school and you will be given an extended loan term between 10 and 30 years.

Just visit the StudentLoans.gov website to go through this process and find a repayment plan that suits you.

What is Student Loan Refinancing?

Student loan refinancing is very similar to consolidation and the two are often used interchangeably. In both cases, you apply for a new loan and this is used to pay off the old one(s), but refinancing is only offered by private lenders and can be used to “refinance” a single loan.

The process is the same for both and in most cases, you’ll see “consolidation” being used for federal loans and “refinancing” for private loans.

Student Loan Forgiveness and Other Options

You may qualify to have your federal student loans fully or partially forgiven. This is true whether you have previously been accepted or refused for repayment plans and it can help to lift this significant burden off your shoulders.

  • Public Service Loan Forgiveness (PSLF): Offered to government workers and employees with qualifying non-profit companies. You can have your federal loans forgiven after making 120-payments. This program works best with income-focused repayment plans, otherwise, you may have very little left to forgive (if anything) after that period.
  • Teacher Loan Forgiveness: Teachers can have their federal student loans partially forgiven if they have been employed in low-income schools for at least five years. They can have up to $17,500 forgiven.
  • Student Loan Forgiveness for Nurses: Nurses can qualify for PSLF and this is often the best option for getting federal student loans forgiven or reduced. However, there are a couple of highly competitive options, including the NURSE Corps Loan Repayment Program.

There are also Income-Driven Repayment Plans, which is definitely an option worth considering.

Income-Driven Repayment Plans

An income-focused repayment plan is tied to your earnings, taking between 10% and 20% of your earnings, before being forgiven completely after 20 or 25 years. There are four plans:

  • Pay as you Earn (PAYE): If you have graduate loans and are married with two incomes then you may qualify.
  • Revised Pay as you Earn (REPAYE): Offered to individuals who are single, don’t have graduate loans, and have the potential to become high earners.
  • Income-Based Repayment: If you have federal student loans but don’t qualify for PAYE.
  • Income-Contingent Repayment: If you have Parent Plus loans and are seeking a reduced monthly payment.

These programs can greatly reduce your monthly payment and your obligations, but they are not without their disadvantages. For instance, they will seek to extend the repayment term to over 20 years, which will greatly increase the total interest you pay. If anything is forgiven, you may also pay taxes on the forgiven amount.

You can discuss the right option for you with your loan servicer, looking at the payment term in addition to your current circumstances and projected income as well as your student loan terms.

Conclusion: Help and More Information

Student loan refinancing and consolidation can help whether you’re struggling with federal loans or private loans, and there are multiple options available, as discussed in this guide. If you have credit card debt, personal loan debt, and other obligations weighing you down, you may also benefit from a debt management plan, balance transfer credit card, or a debt settlement program.

You can find information on all these programs on this site, as well as everything else you could ever want to know about federal student loans and private loans.

Source: pocketyourdollars.com

How to Get a Personal Loan (Application, Approval, Alternatives)

  • Personal Loans

Personal loans are typically unsecured loans offering up to $50,000 with a term of up to 5 years. They come in several shapes and sizes and interest rates, fees, and terms can differ greatly, but the average personal loan in the United States is between $7,000 and $8,000 and charged at a rate of 11% and 12%.

Get approved fast for a Personal Loan!

Compare multiple loan options from the nation’s top lenders.

Attention: Still Open During the Financial Crisis…

Tip: Apply now to see if you qualify for a personal loan today!

Steps to Getting a Personal Loan

  1. Check Your Credit Report
  2. Compare Rates and Terms
  3. Get a Pre-Qualification
  4. Look at the Fine Print
  5. Look at Alternative Options
  6. Receive Final Approval

1. Check Your Credit Report

The better your credit score is, the lower the interest rate of the loan will be. You can get a free credit check from all three of the main credit bureaus (TransUnion, Experian, Equifax) once a year and use this to see what the lenders will see.

Your credit report will show your credit history in intricate detail, as well as your personal details and all active accounts. If your credit score is below 600, you’ll likely be refused a personal loan; if it’s lower than 700, you may succeed, but won’t necessarily get the best rate.

In any case, it always helps to build your credit score and it’s also very easy to do. If you follow the steps below, you may see a sizeable improvement in a few short months:

  • Increase Credit Limits: Your credit utilization ratio calculates your debt in relation to your credit limits. Someone with a debt of $100,000 is not necessarily worse off than someone with debt of $10,000 if the former has a credit limit of $2 million and the latter has a credit limit of $20,000. By judging debt in this way, your credit score builds an accurate and relative picture of your financial situation. By increasing your credit limits, you can improve this part of your credit score in one quick move.
  • Payoff Debt: Debt is the other half of the credit utilization ratio and works just as well as increasing your credit limit. If you have a debt of $5,000 and a credit limit of $10,000, your credit utilization is a high 50%. If you repay just $1,000 and increase your credit limit by $1,000, this ratio drops to a respectable 36%.
  • Get a Secured Credit Card: A secured credit card uses a security deposit as collateral, allowing you to sign-up even if you have very bad credit or no credit at all. It can build your credit in as little as 6 months as all payments are reported to the credit bureaus. Your deposit will set your credit limit and is completely refundable.
  • Stop Applying: Every time you apply for a new auto loan, personal loan, credit card or mortgage, you receive a hard credit inquiry, which can reduce your FICO credit score by between 2 and 5 points. What’s more, every new account will reduce your score even more and make it harder to quickly build a strong score. Keep applications to a minimum and only apply when you absolutely need a new account.
  • Keep Making Payments: Your payment history accounts for 35% of your FICO credit score, which is more than anything else. It takes a long time to build your score this way, but as soon as you miss a payment, your score can drop by over 100 points and undo all your hard work, while making your task considerably harder.

At the same time, however, your credit score is not the only thing that matters. There is a misconception here, one that claims you can get pretty much anything you want as long as you have an excellent credit card. But that’s simply not the case.

If you are self-employed with an inconsistent income that never goes higher than $15,000 a year, it’s still possible to have an excellent credit score. After all, as long as you keep credit applications to a minimum, meet your payment obligations on time and keep a strong credit utilization ratio, you can build a great credit score.

But does that mean you’ll be offered a $200,000 mortgage or a $50,000 personal loan? Of course not. You’re not making enough money to cover those debts. You might be offered a low limit credit card with relative ease, but you’ll struggle to get a sizeable personal loan and may be refused outright.

2. Compare Rates and Terms

An estimated rate is, as the name suggests, just an estimate. It can vary greatly depending on your credit score, income, and a few other factors. However, your eventual rate will always fall into the estimated range and by looking for the best ranges and comparing the most likely rate based on your current credit score, you can avoid wasting your time on high interest loans.

Many borrowers will look for the lender they are most familiar with, including the ones they have a bank account or mortgage with. But your checking account is irrelevant here and by skipping the comparison shopping you could end up with a much higher rate than you can afford.

Look for the cheapest rates and compare these to the best loan amounts. Calculate how much you will need and whether or not you can sacrifice a few dollars here and there to save more on interest. 

3. Get a Pre-Qualification

A pre-qualification will give you an idea of what sort of loan you can get based on your credit score and income. You can then use this information to compare and contrast, ensuring you find the best and most suitable loan for you.

You will need to supply all of the following information, and this will be used to determine if you’re a good fit or not:

  • Your Social Security Number
  • Your full income and debts (debt-to-income ratio)
  • Your date of birth, home address, phone number, and email
  • All your previous addresses dating back a fixed number of years
  • Details of your education

If your income is too low, your debt-to-income ratio is too high, your credit score is poor or you have made too many credit applications, you may be refused a pre-qualification.

4. Look at the Fine Print

Does the loan have a prepayment penalty? Does it charge high fees and penalty rates? Is there an origination fee? This information may not be included on the main offer page, but it’s essential for determining the worth of a loan, so dig around in the terms and conditions, and make sure you’re getting the best loan possible in terms of the lowest rate as well as the lowest fees.

5. Look at Alternative Options

A personal loan is not the only option at your disposal, and it may not even be the best one. Depending on what you need the money for, there are a host of better alternatives out there, ones that may be more forgiving of your credit score and more willing to give you a large sum and a low rate.

It’s not all about banks. There are online lenders, credit unions, and a host of other financial institutions willing to help you out.

We have outlined some of the best alternative options a little further down this article.

6. Receive Final Approval

Once you have browsed multiple loan offers, checked loan rates, and decided on the best option for you, it’s time to apply and get final approval. You will need to provide some additional info, including W-2 forms and pay stubs, and then the lender will check your credit score and you’ll receive a hit of between 2 and 5 points.

If there are no issues, the loan will be finalized. Some online lenders offer to pay your funds by the next business day and other lenders offer instant payment on acceptance of the loan application. However, many will pay within 1 week.

What are Personal Loans Used For?

You can use a personal loan for a variety of reasons and in most cases, the lender doesn’t care which one you choose. As long as you meet the monthly payments and have a respectable credit score, they don’t care if you’re blowing it on a vacation or launching a business. Here are a few reasons to apply for a personal loan, some of which make more sense than others.

Debt Consolidation

If you have a lot of credit card debt, you can use an unsecured personal loan to clear it. You’ll still have debt, as you’re essentially swapping one debt for another, but you may be charged a lower interest rate or smaller monthly payment.

There are debt consolidation and debt management companies that specialize in this service and can do all the hard work for you. However, these companies focus mainly on reducing your monthly payment and interest rate in exchange for a prolonged-term. You’ll pay less per month and may have an APR that is several points lower, but the increased term means you will pay much more over the length of the loan.

If you have a strong credit score, are in a good financial position and have several high interest credit card debts, you can get a low rate, short-term loan. You’ll pay more per month, but over the term, you could save thousands of dollars in interest payments.

Vacation

It’s rarely a good idea to accumulate debt just so you can enjoy the vacation of a lifetime. But what if it’s the only chance you have of taking that vacation? What if it would be a life goal realized and you’re confident that you can make the monthly payments and eventually clear the debt?

In such cases, while we would never recommend it, using a personal loan for a vacation is understandable. It’s something that many older married couples do to pay for cruises and trips across Europe. It’s also a method used by young married couples to have the honeymoon they have always dreamed of.

College Education

Student loans aren’t always readily available, nor are they the best option. And while they are usually more preferable to personal loans, they may not provide the coverage that you or your grandchildren need.

In the last decade or so, there has been an over 1,000% increase in the number of senior student loan borrowers. This isn’t the result of an influx of mature learners, but rather it’s because they are assuming debts on behalf of their grandchildren and children, co-signing to help them through college.

Pay for a Major Expense

Life can throw several major and unexpected expenses your way, and if you don’t have any money in your savings, a personal loan may be your only option. Many couples live their lives relatively debt and problem-free until one of the following expenses raises its head and they opt for a personal loan.

  • Marriage: A marriage is not something that happens unexpectedly, unless you’re a parent and your child is the one getting married. In either case, it’s a massive expense that can cripple you financially, with the average wedding costing over $30,000.
  • Adoption: The average cost of adoption in the United States ranges from between $40,000 and $50,000. Like a wedding, it’s not necessarily something that happens unexpectedly, but also like a wedding, when the time is right and the need is there, it’s something you feel like you have to do.
  • Funeral: Funerals can cost upwards of $10,000 and often occur out of the blue. If the deceased is insured or has assets, it’s not a problem, but there are countless people who are not insured, don’t have assets, and die unexpectedly. If you’re the closest person to them, you may find yourself assuming responsibility for their funeral.
  • Medical Services: If you fall ill and need a specific type of treatment or surgery that your insurance won’t cover, a personal loan could be the only option. Medical treatments are very expensive, and many Americans simply can’t afford to cover these costs out of their own pockets.

Launch a Business

Launching a business is another risky way to use a personal loan, but one that many borrowers are submitting to every year. This is the golden age of entrepreneurs, and there has never been a better time to launch a business.

Of course, grants and business loans are also available, but the former often requires you to work in specific niches and abide by specific terms, while the latter will be weighed against your personal finances if your business is small or new. A personal loan, therefore, may be the only option for business owners seeking to launch a new project.

Alternative Options to Personal Loans

A personal loan isn’t your only option when you need a little cash. You can borrow money through several different avenues, and the best option for you will depend on what you’re using the money for:

Credit Building

You need credit to build credit; you need a credit card or a loan before you can get the FICO score you need to get a credit card or a loan. It can feel like a Catch-22 situation, but it’s not as complicated as it might initially appear.

If you have no credit or bad credit, you may be offered a super high interest rate loan or credit card and that can help you to build a respectable score. However, it’s a risky way to do it and there are many better options out there if your only goal is to build credit.

For loans, you can use something known as a credit builder loan. Much like a reverse loan, a credit builder loan requires you to complete many of the same steps as a traditional loan, only the lender keeps the lump sum amount and moves it to a secured account. 

That loan payment earns you a small rate of interest and this helps to offset some of the interest you pay the lender. Every month, you make a payment on the loan, paying some of the principal in addition to the monthly interest, and the lender will report your payments to the three major credit bureaus (TransUnion, Experian, Equifax).

Every month, your score will improve slightly as your payment history receives a boost and then, at the end of the term, they’ll release the lump sum to you, and you’ll get most of your money back (minus the interest) in addition to the credit score boost.

Paying Off Debt

A personal loan is a great way to clear debt, but it’s not necessarily the best option. If you’re struggling to meet your monthly payment obligations, it’s not the right option at all, as your monthly payments will increase as your term decreases.

Instead, you can look into the following options:

  • Debt Payoff: Sometimes, simple debt payoff strategies like the Debt Avalanche and the Debt Snowball are enough to clear your debt and can do so in a way that won’t cost you dearly or damage your credit score.
  • Debt Settlement: One of the best and cheapest ways to clear credit card debts, debt settlement works by agreeing reduced settlement amounts with your creditors.
  • Debt Management: A form of debt consolidation performed by a specialist credit counselor. You will pay less every month and can receive greatly improved terms.

Launching a Business

Once you’ve cut costs, reduced expenses, and considered all possible ways to reduce your initial outlay for a business launch, then it might be time to consider crowdfunding. Sites like Kickstarter can help you to get the funds you need and if you have a good idea or product, along with perks, it can give you capital.

You can also sell shares in your business to friends and family, or simply ask them for a small loan.

Expanding a Business

One of the best loan options for expanding your business is something known as PayPal Working Capital, a program that we have touched upon and praised several times before. If you accept PayPal for your business and have processed many payments through your PayPal account, you’ll be offered a lump sum to help you grow.

The loan amount you’re offered will depend on how much money you receive every month. As for the repayment term, you need to pay 10% of the total every 90 days, and all payments are taken as a percentage of your income. If you opt for $20,000, you may pay a fee of $2,000, taking the total to $22,000, and be asked to pay $2,200 every 90 days for a 20% cut.

This means that for every $1,000 you earn, you’ll pay $200 back to your PayPal Working Capital loan, in addition to the usual PayPal fees. The application process is quick and easy, and you can have the money in your PayPal account in just a few minutes.

Paying for Education

While a personal loan can be a useful option when paying for your education or a family member’s education, student loans often provide better rates and loan terms. They can also cover most of the costs associated with college, although if you need extra money for living costs, then a personal loan can be considered.

Paying for Vacations or Other Expenses

If you are a homeowner and have built substantial equity in your home, then a home equity loan or home equity line of credit may provide you with better loan terms and a much higher loan amount. 

A home equity loan or line of credit is a secured loan, as it uses your home as collateral. If you fail to make the payments every month and eventually default on your loan, the lender can simply take your asset and use it to recover the costs of the loan. 

As a result, the annual percentage rate is often much lower. You will still need good credit and a respectable debt-to-income ratio to apply, but the best home equity loan is typically much more favorable and cheaper than the best personal loan.

Source: pocketyourdollars.com

Many consumers are still getting help with debt

At the end of December 2020, around 2.87% of accounts in the auto, credit card, mortgage or unsecured personal loan accounts were still in some form of financial hardship status.

But the percentage of accounts in that status continue to fall from a high of 4.77% in May 2020, according to TransUnion’s Financial Services Monthly Industry Snapshot Report.

TransUnion data includes all of the accounts with accommodations at the end of December plus those that had accommodations pre-pandemic.

The percentage of credit card accounts in financial hardship status fell from a high of 3.73% in May 2020 to 2.42% in December 2020. 

Repayment preferences vary

Among those consumers with loan accommodations, plans to repay the money were diverse, according to TransUnion.

The research showed that around 25% of them want to return to making regular payments and negotiate with lenders to increase the length of the loan, while 19% would like to continue the accommodation and 17% want to catch up by making bigger payments.

See related: Credit card spending rebounds from pandemic plunge

Delinquencies and hardship program situation surprisingly positive

Ted Rossman, industry analyst for CreditCards.com, said that in general, the outlook for delinquencies and hardship programs is surprisingly positive.

“Delinquencies have actually fallen during the pandemic and fewer customers than we initially expected have enrolled in hardship programs, plus many have already gotten back on track,” Rossman said.

For example, Chase reported that more than 90% of customers who exited their assistance program have remained current on their payments.

And, according to the ABA Banking Journal, “Bank card delinquencies fell 109 basis points to 1.52% of all accounts in the second quarter, declining to the lowest level on record. In the third quarter they were essentially flat.”

Rossman noted that government stimulus programs deserve a lot of credit, along with many consumers spending less and making debt payoff a priority.

“It seemed like the stimulus impact was starting to wane late in 2020, but Congress and the Trump Administration agreed on another round of stimulus right before New Year’s and the Biden Administration is intent on implementing an even larger program soon,” Rossman said.

Rossman said we’re not out of the woods yet, but there’s growing optimism that the worst has passed and we will not see nearly as many delinquencies and defaults as we did during the 2007-2009 financial crisis.

See related: What to do if your credit card is closed due to delinquency

Source: creditcards.com