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It can be costly and draining to pay off debt, particularly if you have several obligations to pay off each month. Additionally, it can feel like you’ll never be debt-free due to the added stress of interest rates that are higher than you would like.
Numerous well-liked debt repayment techniques exist, such as the avalanche and snowball methods. However, debt consolidation is another popular strategy for getting debt free a little sooner, and using a personal loan to do it makes the process as easy as possible.
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What is debt consolidation?
The process of taking several debts, such as credit card debts or student loans, and “rolling” them into a single debt with a single interest rate and monthly payment is known as debt consolidation. Consolidating your debt may also result in a lower interest rate, so using this method makes sense if you want to reduce interest costs.
How does debt consolidation work?
A personal loan is one method of debt consolidation. A lump sum of money is usually deposited into your bank account when you apply for a personal loan, allowing you to use it as needed.
However, if you use a personal loan for debt consolidation, the lender might pay the creditors holding your other debts directly. After that, your only obligation will be to repay the new personal loan with a new interest rate and fixed monthly payment.
This interest rate is frequently less than the interest rates you have been paying on your other debts. Over the course of the loan, you will pay back less money if the interest rate is lower. Additionally, since you might have more room to contribute a little extra cash toward the principal, you might be able to pay off the loan sooner.
Naturally, though, your creditworthiness will determine the interest rate you are offered. Put differently, having a higher credit score can result in a lower interest rate, while having a lower credit score can lead to an interest rate that is higher than what the lender is willing to offer.
Additionally, when you consolidate, you’re essentially “replacing” your numerous debts with a single new loan, so instead of gradually paying off each debt, you’ll only have to worry about making one monthly payment. If there is no prepayment penalty associated with the personal loan you used to consolidate your debts, k. a. , an early payoff penalty), you might think about applying the entire amount of money you would have used to pay off all of your debts to the payment on your personal loan. This will enable you to repay the loan even more quickly and further reduce your interest costs.
However, it’s important to remember that you should search for personal loan providers who don’t impose a prepayment penalty. Some lenders will charge you an extra fee if you pay off your loan early. Depending on how it is assessed, a prepayment penalty’s true cost will change. It may be assessed as a fixed fee, a percentage of the remaining loan balance, or the interest the lender would have missed had you repaid the loan early. Therefore, a prepayment penalty could be very expensive for you.
Debt consolidation loans with no prepayment penalty
One of the best personal loans for debt consolidation on our list is SoFi Personal Loans, which lets you combine various debt types, including student loan debt. This lender is a little more affordable to use than lenders who do charge these fees because it does not impose a prepayment penalty, charge a late fee, or require origination fees. But keep in mind that, typically, in order to be eligible, your credit score must be good or excellent.
- Annual Percentage Rate (APR)8. 99% to 25. 81% when you sign up for autopay.
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Loan purpose
Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
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Loan amounts
$5,000 to $100,000
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Terms
24 to 84 months
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Credit needed
Good to excellent
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Origination fee
No fees required
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Early payoff penalty
None
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Late fee
None
- There are no fees associated with origination, early payoff, or late payments.
- Unemployment protection if you lose your job
- DACA recipients may submit an application with a reliable co-borrower who is a U.S. S. citizen/permanent resident by calling 877-936-2269.
- is able to hold multiple SoFi loans concurrently, if state laws allow.
- Acceptable as proof of income is an offer of employment to begin within the next ninety days.
- Co-applicants may apply
- Applicants who are U. S. To be eligible, visa holders must have more than two years left on their current visa.
- No co-signers allowed (co-applicants only)
For an Upstart Personal Loan, you can still be eligible even if your credit score is more average. Although Upstart typically requires a 600 FICO score, applicants with insufficient credit history are still accepted by the lender It can be utilized for debt consolidation and there is no early payment penalty; however, there is an origination fee of 20%E2%80%94, which will bring your loan amount down to 12% of what it was originally. Additionally, there is a late fee of $15, or 5% of the amount due, whichever is higher.
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Annual Percentage Rate (APR)
5.20% – 35.99%
- Loan purposes include credit card refinancing, debt consolidation, home remodeling, weddings, relocation, or medical expenses.
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Loan amounts
$1,000 to $50,000
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Terms
36 and 60 months
- Credit required: A minimum credit score of 300 on one credit report (although applicants with extremely poor credit histories may still be accepted).
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Origination fee
0% to 12% of the target amount
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Early payoff penalty
None
- Late Fee: The higher of 15% of the outstanding amount or $15, whichever is higher
- Open to borrowers with fair credit (minimum 300 score)
- Accepts applicants without a credit score or with insufficient credit history
- No early payoff fees
- 99% of personal loan funds are disbursed the following business day following the completion of all necessary paperwork prior to the fifth of the month. m. Monday through Friday.
- High late fees
- Origination fees range from 200% to 10%0% of the target amount, automatically deducted from the loan before it is delivered to you.
- The loan agreement can be requested on paper for $10; eSigned virtual copies are free of charge.
- Must have a Social Security number
And like SoFi, Happy Money does not charge late fees or early payoff fees, though theres an origination fee of up to 5% based on your credit score and application. This lender will send payments directly to creditors so you dont have to worry about doing the heavy-lifting.
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Annual Percentage Rate (APR)
11.25% – 24.50%
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Loan purpose
Debt consolidation/refinancing
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Loan amounts
$5,000 to $40,000
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Terms
24 to 60 months
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Credit needed
Fair/average, good
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Origination fee
0% to 5% (based on credit score and application)
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Early payoff penalty
None
- Late fee of 5% of monthly payment amount or $15, whichever is higher (with 2015-day grace period)
- Peer-to-peer lending platform makes it easy to check multiple offers
- Loan approval comes with Happy Money membership and customer support
- No early payoff fees
- No late fees
- Fast and easy application
- U.S.-based customer service
- Higher loan minimums ($5,000)
- Kindly submit a soft inquiry to view origination fees and additional information.
How Payoff is designed to help you stay motivated:
- provides borrowers with a specialized “Empowerment Science” team that is ready to answer inquiries and offer support.
- To help borrowers understand their money management style and develop better habits, free personality tests, stress assessments, and cash flow trackers are available.
- Free FICO tools help members track their progress*
*According to an analysis of Happy Money members conducted between February 2020 and August 2020, those who use a Happy Money Loan to pay off at least $5,000 in credit card debt are said to see an average 40-point increase in their FICO score. (Results may vary and are not guaranteed. ).
Consolidating debts can be a useful tactic for paying off several loans as soon as possible and as cheaply as possible. This may be particularly true if the personal loan you use to pay off the principal early without imposing penalties on you. Most significantly, though, before taking out a personal loan, you should always confirm that it will meet your needs.
FAQ
Can I apply for a loan to pay off another loan?
Consolidating debts can be a useful tactic for paying off several loans as soon as possible and as cheaply as possible. This may be particularly true if you don’t incur any penalties for repaying the principal early on the personal loan you use to consolidate your debts.
Can I get a loan to pay existing loan?
Additionally, debt consolidation loans typically have longer loan terms than original credit card or loan terms. This lowers your monthly instalments, making them more affordable. This is especially beneficial if you’re finding it difficult to make the required minimum payments on your existing debt.
Can I get a loan if I already owe a loan?
Loan amount: Some lenders let you take out multiple loans, but they might have a maximum amount that you can borrow. New APR on loan: Due to your current debt, a lender may approve you for a second loan, but at a high annual percentage rate.
Can I borrow a loan to pay off debt?
If you have several debts from various credit providers, each of which might have different interest rates, monthly fees, and payment dates, it could be a good idea to consolidate your debts with a personal loan.
Read More :
https://www.cnbc.com/select/how-to-use-a-personal-loan-to-pay-off-your-debt-faster/
https://www.bankrate.com/loans/personal-loans/using-personal-loan-to-pay-off-debt/