Debt consolidation is one of the several available options you can avail to pay off your debt.
On paper, it seems very convenient — you can roll off all your debt into one personal loan, ideally with a lower interest rate that won’t change through out the payment period for your loan.
And yet, as with most financial products, debt consolidation is not as simple as it seems. For one, the interest rate of the loan will still depend on your credit history and your overall financial stability. If your credit score is bad, you may end up getting a 20 percent or higher for you loan’s APR. Some lenders may even require a collateral.
There is also the debt consolidation loan cost to consider.
The usual cost of any type of loan consists of the loan amount and the interest rate. But it’s typical more than that. You need to consider all these costs in other to gauge if you will end up financially benefiting from debt consolidation.
For starters, any loan service has fees. It isn’t too different when you consolidate debt.
A debt consolidation service may charge you an origination fee, or a fee that’s charged to any type of loan you take out to cover administrative costs for originating your loan. Sometimes, it is called a closing fee. The actual cost of this varies, though it should be somewhere from one percent to five percent.
If you are looking to save money, look for lenders who won’t charge an origination fee.
Another common loan charge is the annual fee, basically a fee you pay every 12 months. You can likely to pay an annual fee is your loan is a home equity line of credit or a home equity loan. This usually costs more or less $50, depending on your loan balance.
How to save money
Then there are fees that are unique to debt consolidation loan cost.
You need to pay a balance transfer fee at the start of the term of your loan, much like an origination fee. As the term already suggests, a balance transfer fee covers the cost of transferring your debt from one loan account to account. It usually costs around three to five percent of your total loan balance.
If one of the loans you are consolidating is a home equity loan, you may be required to pay an early cancellation fee (usually around one percent of your total loan amount, but sometimes set at a fixed rate).
So with these factors in debt consolidation loan cost to consider, how can you save money from merging your loans?
First, you need to look for lenders that charge minimal fees. Some lenders, for instance, do not charge an annual fee in lieu of the balance transfer fee. Others don’t charge an annual fee.
Take note of late repayment fees as well. The late repayment fee is a penalty the lender charges you when you make a late monthly payment. A single late payment may change the details of your payment terms (for instance, in may increase your APR). To avoid this, make sure you make all your payments on time and that your loan doesn’t have exorbitant late repayment clauses.
Find out everything about debt consolidation loans at debtconsolidation.loans. If you looking for more money tips, here’s a good page to visit too: https://www.ftb.ca.gov/individuals/Financial_Literacy/index.shtml
Is debt consolidation right for you? Find out at debtconsolidation.loans how much such a loan can cost you so you can make an informed choice.