Debt Consolidation may be a great option for you if you have a number of outstanding credit card and loan balances.
If your outstanding balances are racking up high interest fees, you could find yourself sinking deeper and deeper in debt. In that case, debt consolidation could offer a viable way to get back on track. Debt consolidation involves combining a number of smaller balances into one larger debt (at a lower interest rate) – thereby rolling a number of monthly bills into a single more manageable payment. When used correctly, debt consolidation can save you hundreds of dollars each month and simplify your bill payment process.
One way to consolidate your debt is through traditional methods, such as a home equity or other bank loan. With the current credit crunch, these loans are more difficult to obtain than they once were. However, if you have a good credit rating (i.e., FICO score of 700+) and you have enough equity in your home, you may be able to qualify.
A home equity loan wouldn’t be my first choice, however. If the recent real estate meltdown taught us anything, it should be that using your home as an ATM can have serious financial consequences. I would ONLY consider this option if you have the discipline to cut up the newly paid off credit cards and guard against running up additional balances elsewhere.
With other types of bank loans, you will still need some type of collateral in most cases. However, some banks do offer smaller loan amounts (less than $5k or $10k) without this requirement. The terms (length of loan and interest rates) will depend on your credit history and FICO scores.
Social lending (aka Peer Lending) is a newer and very interesting alternative to traditional loan options for credit worthy applicants. A variety of lending networks have popped up in recent years, with Lending Club among the most popular. Membership is free for both lenders and borrowers and the online application process is fairly simple and straightforward.
Within these networks, borrowers can make a loan request to consolidate their outstanding debts. Private lenders (individuals) within the network can then make offers to lend all or part of the requested amount. With Lending Club, loan amounts range from $1,000 to $25,000 with a fixed repayment schedule of 3 years. Once approved, funds are usually deposited into the borrower’s account in less than two weeks.
This option is not available in all states and is open to those with FICO scores greater than 660 and with a debt-to-income ratio of less than 30% (excluding mortgage). To learn more , visit Lending Club.
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