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Last Updated: December 2024
Lower your interest rates, decrease your monthly payments and pay it all in one installment.
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How Does Debt Consolidation Work?
Debt consolidation is the process of taking out a single new loan or balance transfer credit card and using the funds to pay for multiple existing debts. You can consolidate your debt with the help of a professional team or on your own.
A professional debt consolidation company can help you identify the best strategy and loan options for the types of debt you carry, saving you headaches throughout the process. Alternatively, you can take on this research and planning yourself and open a loan or credit card directly.
Is Debt Consolidation A Good Idea?
For many people, the answer is yes. Debt consolidation can be a good way to simplify or lessen your financial burdens in a few different ways:
Unlike debt settlement, debt consolidation doesn't promise to reduce your total current debt, but it does offer you a way to make your financial life simpler. It's also a less risky strategy; debt settlement requires you to stop paying your bills so the company can negotiate with your creditors and "settle" your debt for less, which can cause a significant hit to your credit score.
While completing the final application for a debt consolidation loan will briefly hurt your credit for a few points—the lender will run a hard credit check after you've pre-qualified and want to continue the application—as long as you make payments, your credit should recover in a few months.
Secured vs. Unsecured Debts
Debt settlement companies typically only work with unsecured debts (like medical bills, personal loans and credit cards). Secured debts—those backed by collateral, like car loans and home mortgages—can sometimes qualify for debt consolidation strategies but generally won’t qualify for debt settlement strategies.
Disclaimers
Credible
¹ Prequalified rates are based on the information you provide and a soft credit inquiry. Receiving prequalified rates does not guarantee that the Lender will extend you an offer of credit. You are not yet approved for a loan or a specific rate. All credit decisions, including loan approval, if any, are determined by Lenders, in their sole discretion. Rates and terms are subject to change without notice. Rates from Lenders may differ from prequalified rates due to factors which may include, but are not limited to: (i) changes in your personal credit circumstances; (ii) additional information in your hard credit pull and/or additional information you provide (or are unable to provide) to the Lender during the underwriting process; and/or (iii) changes in APRs (e.g., an increase in the rate index between the time of prequalification and the time of application or loan closing. (Or, if the loan option is a variable rate loan, then the interest rate index used to set the APR is subject to increases or decreases at any time). Lenders reserve the right to change or withdraw the prequalified rates at any time.
² Requesting prequalified rates on Credible is free. However, closing a loan will result in costs to you.
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