Debt Review vs A Debt Consolidation Loan (2024)

FAQs

What is better, debt consolidation or debt review? ›

If your debt is a result of overspending or poor financial habits, debt review may be a better option for you. On the other hand, if your debt is a result of high interest rates and fees, debt consolidation may be the way to go. Another important factor to consider is your credit score.

Home equity loan or HELOC

Most home equity lenders require you to have at least 20 percent equity in your home to qualify. Compared with debt consolidation loans, home equity loans and HELOCs often have longer repayment periods, larger loan amounts and lower interest rates.

Debt consolidation is almost always the better choice. Debt consolidation doesn't change how much you owe, but you might save by getting a lower interest rate. However, you usually need at least good credit for this tactic to work. On the flipside, you could get some of your debt forgiven with debt settlement.

Debt consolidation puts multiple debts into a single account to make your payments easier to manage. Consolidating debts may temporarily reduce your credit score, but your score will improve over time as long as you make payments on schedule.

While debt counselling offers many advantages, it's important to be aware of the potential downsides: Temporary Credit Restrictions: During the debt review process, you won't be able to apply for new credit. While this can be frustrating, it's necessary to ensure you don't take on more debt.

Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.

Consolidating your debt likely isn't the best move for your finances if you have a low credit score and can't secure a lower interest rate on your new loan. Your debt consolidation loan could come with more interest than you currently pay on your debts.

There aren't any free government debt relief programs for credit card or personal loan debt other than bankruptcy. Many types of government debt relief exist in the form of grants and low-interest loans for specific purposes.

Debt consolidation is a good idea if monthly debt payments don't exceed 50% of your monthly gross income, and you have enough cash flow to cover debt payments.

What is the average fee for debt consolidation? ›

The average fee for debt consolidation is about 4% if you choose to get a debt consolidation loan and 3.12% if you get a balance transfer credit card. Along with these fees, you will need to consider the APR on your new loan or credit card when deciding whether debt consolidation is worth it.

Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.

The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.

Yes, it is possible to buy a home after debt settlement, but it may present challenges. Lenders may view individuals who have settled debts as higher risk borrowers, which could affect their ability to qualify for a mortgage or result in higher interest rates.

Debt consolidation is a good idea if monthly debt payments don't exceed 50% of your monthly gross income, and you have enough cash flow to cover debt payments. Debt consolidation isn't a quick fix for severe debt problems.

Taking out a debt consolidation loan can help put you on a faster track to total payoff and may help you save money in interest by paying down the balance faster. This is especially true if you have significant credit card debt you carry from month to month.

Frequently Asked Questions About Debt Consolidation Loans

This varies from lender to lender, however, most of them require a minimum score in the mid-600s. For the best interest rates, aim to get your credit score to 700 or better.