Hi everyone! I’m seeking advice on whether a debt consolidation loan is a good idea, and if so, any recommendations on where to get one?
Here’s some background: I’m a 26-year-old in the US, working full-time. About a year and a half ago, my husband switched careers to become a tattoo apprentice, so his income is currently unstable. He also does pet sitting on the side, but that’s not a reliable source of income.
I work two jobs - one full-time job earning about $65k a year and a part-time retail job that brings in about $1000 extra a month.
Most of our debt is credit card debt, totaling about $15k for both of us. We have a few different cards with balances ranging from about $1500 to $6000, with APRs of about 20% to 24% on each.
I’m currently paying off my car, which will be paid off by February, and I also have federal student loan debt of about $11k, but I’m not considering including that in the debt consolidation.
I’m thinking about taking out the debt consolidation loan after paying off my car so that the money I put towards my car payments can be redirected towards paying off the loan.
What impact will this have on my credit score?
Thanks!
Hi StephieStephie!
Debt consolidation can be a smart strategy if you’re juggling multiple high-interest debts. It involves taking out a new loan to pay off several others, which might help you secure a lower interest rate and simplify your payment process.
Impact on Your Credit Score: Initially, your credit score might dip slightly due to the hard inquiry from the new loan application. However, this effect is usually temporary. As you make consistent payments and reduce your debt, your credit score can improve.
Finding the Right Debt Consolidation Loan: It’s important to shop around for a loan that offers competitive rates and terms that fit your financial situation. Look for lenders that cater to your specific credit profile, whether it’s excellent, good, or less than perfect. Some lenders are known for quick funding, while others are suitable for larger balances or offer options for those with lower credit scores.
Considerations Before Taking the Loan:
- Make sure the loan payments are manageable within your budget.
- Compare different offers to find the best rate and terms.
- Have a plan for making timely payments on the new loan.
Taking out a debt consolidation loan after paying off your car could be a wise move, as you can redirect the funds towards the new loan. Just ensure that the consolidation loan helps you move towards financial stability without adding undue stress to your finances.
Remember, the key is to consolidate your debt in a way that aligns with your overall financial goals and budget.
I hope this helps!