Chat with us, powered by LiveChat

5 Things You Didn’t Know About Debt Consolidation Loans

Debt consolidation loans allow you to combine multiple debts into one new loan, potentially lowering your monthly payments or interest rates. But there are some key things to know before taking out a debt consolidation loan.

1. Your Credit Score Matters

Your credit score plays a big role in determining if you qualify for a debt consolidation loan, and what interest rate you’ll pay. Lenders generally require a credit score of at least 620 to approve a debt consolidation loan. The higher your score, the lower interest rate you can qualify for.

- -

Before applying, check your credit reports and scores so you know where you stand. If your score needs improvement, take steps like paying down balances and disputing errors before applying.

2. Your Monthly Payment May Not Decrease

The main goal of debt consolidation is to lower your monthly payments by extending your repayment term or lowering your interest rate. But that’s not always guaranteed.

If you currently have low-interest debts like federal student loans, consolidating could increase your rate and payment. Run the numbers carefully beforehand to see the impact on your monthly payment.

3. You May Pay More Interest Over Time

Even if debt consolidation lowers your monthly payment, you could end up paying more interest over the full repayment term. This is because consolidation loans typically have longer terms than credit cards or other debts.

See also  How to Handle Medical Debt as a Self-Employed Entrepreneur

For example, consolidating $10,000 in credit card debt with a 24% interest rate into a 5-year loan at 15% interest would lower your monthly payment. But you’d pay $2,000 more in interest over those 5 years.

4. Your Credit Utilization Ratio Will Improve

When you pay off multiple accounts with a consolidation loan, your credit utilization ratio will decrease. This ratio compares your total balances to your total credit limits.

Lower utilization signals lower credit risk and can quickly improve your credit score. Just be sure to keep balances low on the consolidation loan.

5. Missed Payments Hurt More

After consolidation, you’re making just one monthly payment instead of many. This simplifies things, but also means there’s more at stake if you miss or default.

With multiple accounts, one missed payment may not be a big deal. But missing the payment on a consolidation loan could tank your credit score fast.

Only consolidate if you’re confident you can make the monthly payments. Set up autopay as a safeguard against missed payments.

Debt consolidation can be a smart move if done carefully. But go in with your eyes open to both the pros and cons. Crunching the numbers beforehand helps ensure it will benefit your finances in the long run.



Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
How to Lower Your Monthly Auto Loan Payment

How to Lower Your Monthly Auto Loan Payment A high…

Boston Merchant Cash Advance Attorney

Boston Merchant Cash Advance Attorney Getting a merchant cash advance…

How To Get Out Of A Merchant Cash Advance – MCA Debt Relief

How to Get Out of a Merchant Cash Advance So…

Getting Free Help with Your Student Loans is Incredibly Easy

Getting Free Help with Your Student Loans is Incredibly Easy…

6 Signs Your Future Spouse Is Bad With Money

  6 Signs Your Future Spouse Is Bad With Money…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation