debt consolidation loan

How to Know if a Debt Consolidation Loan is Right For You

A study done in 2016 revealed that the average U.S. household has more than $16,000 in credit card debt. That figure was up 10 percent from the previous decade.

If you’re currently trying to manage a large amount of credit card debt, you might benefit from taking out a debt consolidation loan. It can make debt more manageable and give you hope as far as finances are concerned.

But before you apply for a debt consolidation loan, you should think long and hard about whether or not one would be good for you. They’re not always ideal for those who have trouble changing their spending habits or those who aren’t ready to commit to paying down debt.

So, is a debt consolidation loan right for you? If you fall into one of the following categories, you might be able to benefit from applying for one in a big way.

You Have Multiple Credit Cards With Large Amounts of Debt

How many credit cards do you have in your wallet right now?

If you’re like most Americans, there’s a good chance you have more than one. In fact, studies have shown that the average American has 2.6 credit cards–and that number actually jumps up to 3.6 credit cards when you take all of the Americans with no credits cards out of the equation.

Having multiple credit cards at once isn’t the problem. Your credit score can actually benefit from you having several cards if you’re responsible with them.

But far too many people have multiple credit cards with large amounts of debt on them, and it can make it almost impossible for them to pay those cards down. They’re left trying to juggle payments every month and usually have a hard time doing it.

A debt consolidation loan can solve this issue. With debt consolidation, you’ll be able to take all your credit card debt, throw it into one big pile, and then work hard at eliminating it over time.

Debt consolidation loans allow you to pick a repayment period that works for you. They can range from 24 to 84 months and can make your credit card debt feel more manageable than it would be if you were still trying to pay it down through your various credit card companies.

You Have High-Interest Rates on Your Credit Cards

The annual percentage rate, or APR, on a credit card usually falls somewhere between 13 and 18 percent. But the APR on a credit card can also soar up above 20 percent. This can make it difficult to pay down credit card debt.

If you have multiple credit cards with debt on them, you should take a look at the interest rates attached to them. If they’re in the high tens or even the 20s, you should probably consider using a debt consolidation loan.

When you take out a loan, you can get interest rates as low as just 3 or 4 percent, especially if you have great credit. This will allow you to pay off your debt more quickly without worrying about your interest rates dragging you down.

Just make sure you’re actually getting a better interest rate when you take out a loan. There are some debt consolidation companies that will offer higher interest rates on loans than the ones offered by credit card companies.

You Have Credit Cards That Are Maxed Out

Maxing out a credit card can have a detrimental effect on your credit report. This is because maxing out a card will increase your credit utilization dramatically.

In general, you should try to steer clear of using 100 percent of the credit available to you through a credit card. You should make an attempt to use no more than 30 percent of the credit, if at all possible.

If you have one credit card that’s maxed out or worse, if you have multiple cards that are maxed out, a debt consolidation loan is something you should think about using to bring your credit utilization back down.

You should also think about doing it sooner than later. A maxed out credit card might not hurt your credit score right away. But within just a few months, it will bring it down, which could make it harder for you to find a lender willing to give you a loan.

You Have No Emergency Credit Card to Use

More than 50 percent of Americans don’t have enough money in their savings accounts right now to cover an emergency expense costing more than $1,000. Taking care of a broken water heater or a car repair would be impossible for them.

If you’re one of those people with a depleted savings account, it’s good to have an emergency credit card in your wallet that you can use when times get tough. You can pull the card out and use it if an unexpected problem ever pops up.

But if you’ve been forced to use your emergency card in the past, you might not have enough available credit on it to get you through your next tough time. A debt consolidation loan can free up funds to give you the peace of mind that comes along with having an emergency credit card again.

You Have Trouble Making Minimum Payments on Your Debt

There are lots of Americans who are trapped in a vicious cycle. They have a handful of credit cards with debt on them, and they’re only scraping together enough money to make the minimum payments on them.

The next time you get a credit card statement in the mail, look for the tiny box on it that tells you how long it will take to pay down your credit card debt if you continue to make only minimum payments.

Chances are, it will tell you that you’re going to have to keep making minimum payments for 20 years or more to get rid of your debt completely.

This can be very frustrating for most people because it seems like they’re making huge credit card payments for nothing. There is no hope in sight for them, especially if they’re already struggling to make just the minimum payments.

A debt consolidation loan can help you get out of this cycle. Rather than making minimum payments that do next to nothing as far as bringing debt down, you can make payments that will have a real impact over time.

You will be able to monitor your consolidation loan to see your debt go down. It will make a big difference in the way you think and feel about your debt.

You Have Suffered a Dramatic Dip in Your Credit Score

Is your credit score going down almost every month due to your rising debt? It can make your life a lot more difficult than it should be.

Here are some of the side effects that come along with bad credit:

  • You will find that most credit and loan applications you put in will be denied
  • You will have trouble renting an apartment or buying a home
  • You will be forced to put down security deposits for utility companies
  • You will not be able to get a cell phone contract
  • You will even have issues when applying for jobs in some cases

As you can see, there are so many problems you’ll likely encounter when your credit score takes a tumble. So if you’ve noticed your score going down in recent months due to debt, a debt consolidation loan can help.

Debt consolidation can free up your credit utilization and show borrowers you are making an effort to get your debt under control. If you’re able to successfully pay down your consolidation loan, it should give your credit score a big boost later and work wonders for your credit report.

You Have the Discipline to Stop Using Your Credit Cards

Once you have obtained a debt consolidation loan, it’s important for you to work hard to pay it off. But it’s even more important for you to get your spending under control and avoid putting yourself right back into trouble again.

While a debt consolidation loan can be a useful tool when it comes to managing debt, it can also cause problems for those who have trouble using credit cards responsibly. There are some people who will take out a loan to pay down debt only to accumulate more debt in the near future.

After you have secured a loan, you shouldn’t necessarily get rid of your credit cards unless you have to. They will help you improve your credit score as long as you keep the balances on them low.

But you should stop using them to rack up more debt. You should make sure you’re prepared to take that step before applying for a debt consolidation loan in the first place.

Take Advantage of a Debt Consolidation Loan Now

Do you want to get your debt problem under control by obtaining a debt consolidation loan? You can manage your finances more effectively with one and put yourself back on the path towards financial freedom. Just make sure you weigh all your options before putting in an application.

Check out our blog today for more tips on building credit and improving credit scores.