Is Student Loan Consolidation Smart?

It may be smart to consider a student loan consolidation if your student debt picture from college is more of a collage than a still life painting. With different lenders often being responsible for federal loan programs every semester, it’s entirely possible that you’re currently responsible for repaying a number of different loans, both private and federal. With all the other complexities, confusions, fears, and headaches of modern life, juggling such debt from your college years may not only be dizzying, it may also be, with a student loan refinance, thoroughly avoidable. 

Student loan consolidation may be a smart way to make repaying student loans more manageable, both during the pandemic and going forward. It’s also possible that a student loan consolidation may result in a less expensive way to pay off your student loan debt. 

What is a Student Loan Consolidation?

Student loan consolidation is the method of combining all your individual outstanding student loan amounts, taking one lump sum loan, and using those funds to pay off every one of those college student loans. Once consolidated, you will be left with a single loan payment due monthly to a single lender. And you may begin to breathe easier each and every month.

Why You Should Consider Consolidating Your Student Loans

A single payment

The single greatest benefit of student loan consolidation is the corralling of all your college debt down into one manageable payment to a single lender. There could be no more payments spread around to a myriad of different lenders, because after you consolidate your student loan debt, you will have the peace of mind that comes from one solitary loan payment to make each month. 

A Lower Payment

That new single loan payment from a student loan consolidation may result in an easing of the month-to-month financial burden on you. Tally up the total of your student loan payments before starting to research whether consolidating is the best option for you, so that you will know immediately if the new single loan payment each month will be lower than the total of your current monthly student loan payments.

Take Advantage of Your Good Credit

You’re a college graduate — congrats! — and have been working hard, making payments on time and possibly have a good credit score. You may be able to use that good credit to your advantage when going forward with a student loan consolidation at a more friendly interest rate than your current student loan(s).

Lower interest rate

While not guaranteed, it is possible that by consolidating your private student loans, you may end up with a lower interest rate on your college debt. Before making the decision to proceed with a consolidation, be sure to know the interest rate(s) of your current private and/or federal student loan(s). 

Avoid Default

According to the Department of Education, over 10% of borrowers have defaulted on their federal student loans. By consolidating your private and federal college-era debt, you may help yourself stay in the 90% of the population!

One More Thing To Consider Before Consolidating Your Student Loans

If some or all of your college tuition debt is in the form of federal student loans, be sure to consider the possible benefits you may be missing out on, just as a deferment or forbearance to temporarily suspend your payments as COVID-19 assistance as well as during other hardships you may face, should you consolidate into a single private loan. 


Read More: 6 Tips That Could Improve Your Credit Score

3 Ways to Consolidate Credit Card Debt

You’ve maxed out all your credit cards and now find yourself struggling to pay off credit card debt. It’s a bad spot to find yourself in, and you should know that you’re not alone. According to Forbes, in the wake of COVID-19, credit card debt is on the rise.  Currently, 47% of all Americans now carry credit card debt—meaning 120 million people. Among those people, 23% of them (i.e. 28 million Americans) have added to their credit card debt as a direct result of the pandemic and its economic aftermath.

Between new economic stressors, the amount you owe, and the high interest rates, you may feel overwhelmed. But it’s important to know there are ways to pay off credit card debt. Here are 3 ways to consolidate your credit card debt and how each can help you gain control of your financial wellness again.

Why Consolidate Credit Card Debt?

Before we look at how to consolidate credit card debt, let’s first look at what debt consolidation is overall. Why would you want to consolidate all of your debt into one lump sum? Because it can help make it more manageable to pay off.

If you have multiple cards with high balances and interest rates, consolidating those balances into one monthly payment simplifies the payoff process thereby making monthly payments more manageable.

Ideally, debt consolidation works best when the loan or line of credit you get has a lower interest rate than your current credit cards. The lower rate allows you to save money in the long run and possibly pay off credit card debt sooner.

Important note: If you decide to consolidate your debt, make sure the repayment term is a length you are financially comfortable with. It is best to be realistic about how much you can afford to pay per month so you don’t find yourself back where you started.

How you can Consolidate Credit Card Debt

Now that you have a better idea about how debt consolidation works, it is important to explore which option would work best for you. From personal loans, to a home equity line of credit (HELOC) to balance transfer cards, let’s explore three ways you can consolidate your credit card debt.

1.   Apply for a Personal Loan

A personal loan is a specific amount of money you borrow from a lender that is paid back in fixed monthly payments, typically over a period of 3 to 5 years. 

Most personal loans are unsecured, which means you won’t have to use your car or home as collateral. But personal loans can have higher interest rates than other debt consolidation options. That said, unlike your credit cards, a personal loan has a fixed rate, so it will never get any higher in the duration of your payback period.

So, let’s say you earn $34,000 a year, and that $30,000 personal loan you got approved for has a 9.41 percent interest rate—an amount that’s currently the national average, according to Experian. If your repayment term is three years, the lender will expect to pay around $960 per month to cover the full amount and the interest, which stands at $4,550 for the three-year term.

Finding an unsecured personal loan with a lower interest rate can be possible, but you have to shop around or have a peer-to-peer lender compare rates for you.

Important note: You have to be very good at keeping up with monthly payments. If you aren’t careful with a personal loan, you could be swapping one form of debt for another.

2.   Apply for a HELOC

Homeowners who are saddled with credit card debt may be able to use their home equity to settle outstanding balances. They do this by applying for a home equity line of credit, or HELOC.

A HELOC lets you tap into the equity you’ve built in your house or the difference between how much you owe on your home and your home’s value. If your home is valued at $400,000 and the balance on your mortgage is $160,000. That means you have $240,000, or 60%, in equity.

A home equity line of credit, or HELOC is similar to a credit card as it offers a revolving line of credit. You only have to pay back what you use, plus interest. Because the interest rate may be lower and a HELOC can offer you access to a larger sum of money, this could be an option to consolidate your credit card debt.

Important note: Unlike an unsecured personal loan, a HELOC uses your home as collateral. If you are not able to pay on time, you could lose your home.

3.   Apply for a Balance Transfer Credit Card

The third option to consolidate credit card debt is to get another credit card. Yes, it sounds counterintuitive, but a balance transfer credit card allows you to transfer the balances from high-interest cards to a credit card with an introductory offer of little to no interest. 

This sounds ideal, right? It can beif you are able to pay off the card before the introductory period ends. But, because the low-to-no interest rate is only offered for a certain amount of time, if you don’t pay off the balance before it expires, the remaining balance will be subject to the card’s regular rate. That could be as much as 16%, the current national average.

Important note: Some cards charge a balance transfer fee that can be as much as 3-5% of the total amount you transfer. This fee is added to your total balance. Because the amount you transfer plus your balance fee can’t be higher than the credit limit of the card, it may not cover all of your debt.

Read More: How to Simplify Your Life with Debt Consolidation.

How to Get a Personal Loan for Debt Consolidation

If your bills are piling up and you find yourself struggling to catch up on your monthly payments, you may consider getting a personal loan for debt consolidation. This type of loan is designed to help borrowers pay off multiple high-interest debts by combining them into one lump sum that you can pay back over time, often at a lower rate. Let’s take a closer look at what a personal loan for debt consolidation is and what you need to qualify.

What You Need to Know About Debt Consolidation Loans

A personal loan for debt consolidation is, essentially, a refinance loan that extends the length of time for repayment for your existing obligations. It lets you combine multiple debts into a new, separate loan that consolidates all of your outstanding balances in one monthly payment. Debt consolidation is appealing to many not only because it simplifies your monthly payment process, but it often comes with lower interest rates. If you’d like to learn more about the debt consolidation process, check out our step-by-step guide.

Debt consolidation can be used to tackle both secured and unsecured debt. Credit cards, payday loans, medical bills, and personal loans are all examples of unsecured debt. A HELOC, or Home Equity Line of Credit, is a type of secured debt, with your home or property serving as collateral.

Be aware that because debt consolidation extends your repayment terms, you may be in debt longer under that one new loan. Whatever your financial situation is, weigh the pros and cons of paying a little less over a longer period of time with a debt consolidation loan. 

Getting a Personal Loan for Debt Consolidation

To get a personal loan for debt consolidation, you need to start by applying with a traditional or online lender, who will review your creditworthiness to determine whether you qualify for the loan. If you do qualify, the lender will set your monthly interest rate, which is typically based on your credit score.

If your FICO score is 670 or higher, you’re in the good-to-excellent range, which means you’ll likely be approved at a lower rate. If your credit score is 669 or lower, you’re in the fair-to-poor range and may want to hold off on getting this loan to avoid a high monthly interest rate. See what your options are for improving your credit score and consider applying again when your score has improved.

“Lenders often see people in ‘poor’ credit ranges as risky, and as a result, might not issue a new loan to someone in that range,” according to the consumer credit reporting agency Experian. If your FICO score is in that fair-to-poor credit range and you’re approved to consolidate your debt, “the interest rate on your new loan could, in some cases, be higher than the APR on your existing debt.” Be sure to talk to your lender about your options so you can make the best financial decision for your situation. 

Is a Personal Loan for Debt Consolidation Worth It?

If your FICO score is good and you’re prudent about your spending, then using a personal loan for debt consolidation could help you save money on interest and settle your outstanding balances without the chaos of multiple monthly bills.

Improving your relationship with money and getting educated about creating a healthy financial life is a slow and steady process. If you’re interested in a debt consolidation loan, get a good grasp of your current financial state and talk to your lender about which options are best for you. After all, a personal loan for debt consolidation is meant to help you simplify your financial plan – not complicate it.

You can learn more about personal loans here.

Read more: 6 Ways to Improve Your Credit Score


Using a Personal Loan to Pay off a Credit Card

If you’re saddled with credit card debt, then you may be considering using a personal loan to pay off a credit card. Personal loans can be a smart option that allows you to consolidate payments, score a lower interest rate, and trim the time it takes to pay down your overall debt. To help you decide whether this is the right financial move for you, here’s what you need to know about using a personal loan to pay off a credit card.

What is a personal loan?

Sometimes, lenders charge an origination fee, which amounts to around 1% to 5% of the loan.

True to their name, personal loans offer financing for just about any expense that could arise in your life. Most personal loans are unsecured, meaning they don’t require any form of collateral (like your house or car). To offset that risk, lenders typically charge a higher interest rate than you would see with a secured loan. 

If approved for a personal loan, you would receive the full lump sum upfront and then begin making payments toward the balance, with interest, over a set time period, such as 24 or 36 months.

What do you need to qualify for a personal loan?

When you apply for a personal loan, a lender will evaluate your application, which includes information such as your:

  • Employer
  • Salary
  • Current debts

The lender will take a look at your credit score, which measures your overall creditworthiness. 

Your credit score takes into account your track record of on-time payments, the percentage of credit you’re using in proportion to your overall credit, and the average age of your accounts. The better your credit rating is, the lower your interest rate will typically be. You will receive a decision from the lender within a few days, and possibly sooner if your application is approved.

How do you use a personal loan to manage debt?

Using a personal loan to pay off a credit card is an exchange of one form of debt for another. However, personal loans can be a financially savvy alternative, since in many cases you can snag a lower interest rate that allows you to extinguish debt faster. 

If you’re aiming to pay off multiple credit card balances, consolidating them into one fixed payment simplifies your payment obligations, giving you one single payment with a fixed end date in sight.

What’s different about a personal loan through Prosper?

Personal loans are a regular fixture at banks, credit unions, and, more recently, peer-to-peer lending formats. As a peer-to-peer lending platform, Prosper connects applicants with investors who agree to fund the loans. If you’re using a personal loan to pay off a credit card, you can find fixed-term, fixed-rate loans through Prosper. This means your interest rate will never change during the lifetime of your loan. 

You can also prepay your loan at any time without incurring a penalty. Since the interest rate of a personal loan through Prosper remains stable, you could stand to save hundreds or even thousands of dollars on interest as you work toward paying off your credit card balances.

Is a personal loan the right fit for my situation?

To determine whether using a personal loan to pay off a credit card is the right choice for you, compare the rates offered by the lender to the rates you’re currently paying on your credit card. Make sure to consider the origination fee to calculate the overall cost of the loan. 

It also helps to remember that credit card issuers can spike your interest rate at any time, unlike personal loans which are generally tied to fixed interest rates and monthly payments. To help you make your decision, Prosper offers a user-friendly platform where you can check your lowest eligible rate based on the amount you need to borrow and choose the offer that best fits your needs and budget. You can learn more about Prosper’s personal loans here.

Read more: A Beginner’s Guide to Securing Your Financial Future and Building Wealth

What Is a Personal Loan? Here’s Everything You Need to Know

As you explore different financial borrowing options, you may find yourself asking, “What is a personal loan?”

What is a personal loan?

A personal loan is a set amount of money that you borrow from a bank or lender, which you then pay back in fixed installments each month over a set period of time.

A personal loan is typically unsecured, which means you don’t have to use a large possession (like your home or car) as collateral for the loan. That said, unsecured loans can involve higher interest rates than secured loans. Nevertheless, many people prefer the unsecured personal loan option since none of their possessions are in danger of being repossessed if they’re unable to make payments.

How much can you borrow with a personal loan?

The amount you can borrow depends on your debt-to-income ratio and how much you make each year. Most lenders offer personal loans from $2,000 to $40,000. If you carry less debt and have a higher income, you’ll typically qualify for a higher loan amount.

What can a personal loan be used for?

Many people who ask, “What is a personal loan?” want to understand what they can do with the funds. You can use a personal loan to finance just about anything according to your needs. That said, as with most things, some choices are smarter than others.

Only ever take out a personal loan if doing so would put you in a financially stronger position than you were before. Therefore, smart reasons to take out a personal loan include:

Renovating Your Home

If you’re about to sell your house, updating and repairing aspects of your home will often help boost its value, enabling you to sell it at a higher price. In this case, a personal loan would likely be a wise move on your part. To finance home improvements, you might also consider a Home Equity Line of Credit

It’s a good idea to consult a real estate agent before undergoing any renovations. It’s smart to get input from someone who is knowledgeable about current buyers, knows your area, and can accurately analyze recent comps in your area. There’s a sweet spot with every home renovation. You don’t want to spend too much and not get any return on your investment!

Consolidating Your Debt

Personal loans often come with much better interest rates than credit cards, so it’s often a good idea to pay off your old debts using a personal loan with a lower interest rate.

Paying off an Emergency Expense

You can’t always plan what life throws at you, but you can choose how you pay for it. Whether it’s an emergency medical expense, an unexpected funeral, or a necessary home repair, a personal loan is usually a better option than a credit card–particularly if you know you’re not going to be able to pay off the balance next month. This is because the interest rates are much lower than most major credit cards.

What loan terms come with a personal loan?

The next question that tends to pop up after “What is a personal loan?” is “how long will I have to pay it back?” Most personal loans range from 3 to 5 years. Keep in mind that the loan term you choose will affect the interest rate–meaning shorter term loans often come with lower rates.

The good news is that the monthly payments are usually fixed, so there is never a surprise about how much you’ll owe each month. You can set yourself up with automatic payments and forget about it.

What interest rates come with personal loans?

Interest rates depend on your financial profile and the size of your loan. If you have a low credit score, then you’ll likely receive a higher interest rate than someone with average to great credit. Fortunately, there are many ways you can improve your credit score if you’re looking for a bump.

What credit score do you need for a personal loan?

While your loan terms are impacted by your credit score, it’s easy to check your rate with a reputable online lender. Confirm that you’ll only have a soft credit pull and won’t have to worry about any damage to your credit score while you research your options.

Is taking out a personal loan a smart move?

There are many situations in which a personal loan is a solid financial decision. Whether you’re consolidating high-interest credit card debt or trying to cover a large purchase, personal loans can be a great option to help you reach your financial goals. Comparing rates and continuing to educate yourself about the mechanics behind a personal loan can make the decision easier.

Credit Cards vs. Personal Loans: Which One Is Right For You?

Too Much Credit Card Debt? Expert Tips for Paying It Off

The first step to eliminating debt is getting a handle on how much you owe.

American consumers are awash in debt. According to a recent report by the Federal Reserve, we collectively owe $4.1 trillion in consumer debt, including over $1 trillion in credit card or revolving debt.

Are you stressed—both mentally and financially—about your share of this credit card debt? Then it’s time to take action and heed these expert tips for paying it off.

Calculate Your Credit Card Debt

You can’t get a handle on your credit card debt if you don’t know exactly how much you owe and to whom. Yes, it may be painful to add it all up, but it’s necessary if you are serious about paying your balances down. Make a list of every card, its balance and interest rate, and then total it up. Make sure to include retail charge cards in your list.

Instead of getting depressed about your total, use it as motivation to take the next step.

Rethink Your Spending

Look at your monthly income and expenses. Do you routinely spend more than you make with the help of credit cards? Then stop using them at will. Leave one credit card, preferably one with no balance, in your wallet for emergencies only, and store the rest in a safe place until you pay them off.

Next, create a realistic budget, starting with all necessary expenses. In factoring in your discretionary spending, i.e., entertainment, clothes, etc., Better Money Habits suggests finding ways to cut back. This will help you live within your means and also earmark more money for paying off your credit cards, which should definitely be a budget line item by the way.

Choose the Right Payoff Method

Rather than making minimum payments on each card every month with maybe a little extra here and there, you need a structured payoff plan. Otherwise, you’re likely to continue spinning your wheels and getting nowhere.

There are two primary methods that experts recommend for paying off debt. Both involve setting money aside for it in your budget. To determine which plan is right for you, you need to understand how each works and what results will motivate you to stay on course: Would you rather pay off debt sooner or see quick wins? Let’s take a closer look at each method.

  • Debt avalanche: You pay off the card with the highest interest rate first by paying as much as possible on that card and the minimum on all other cards each month. Once that first card is paid off, move on to the card with the next highest interest rate. Credit Card Insider explains that “since you’re tackling your debts in order of interest rate, you’ll pay less overall and be out of debt more quickly.”
  • Debt snowball: You pay off the card with the smallest balance first with as big a payment as your budget can afford each month, while paying the minimum on all other cards. Once the smallest is paid off — presumably pretty quickly— move on to the card with the next smallest balance. This method takes longer, but it provides quick wins for those who need to see tangible results (a zero balance) to stay motivated.

Consider Consolidating

Many experts also recommend consolidating credit card debt to pay it off sooner. Debt consolidation from a place like Prosper.com can simplify your monthly finances. Since you only have one payment to make, instead of many, you’re less likely to miss a payment — which can cause your credit score to drop.

There are two key financial vehicles for debt consolidation:

  • Balance Transfers: If you have good to excellent credit, you can also take advantage of a credit card balance transfer offer for a zero or low annual percentage rate. The key to making this option work is paying off as much of the balance as possible — if not all of it —before the introductory rate expires, which is typically six to 18 months after the account opening.

Need More Motivation?

As The Penny Hoarder explains, if you only pay the monthly minimum on approximately $15,000 in credit card debt with an 18 percent interest rate, it will take nearly 23 years to pay it off. There’s no need to wait that long. Using these expert tips, you can start your debt reduction plan today.