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How Does Debt Consolidation Work and Other Facts About Consolidation

How Does Debt Consolidation Work and Other Facts About Debt Consolidation

When it comes to trying to pay of your debt it can be hard when you have multiple accounts open. Read on to learn how does debt consolidation work.

When it comes to trying to pay of your debt it can be hard when you have multiple accounts open. Read on to learn how does debt consolidation work.

Did you know that Americans now have more debt than ever?

In fact, this debt amounts to a hefty $13 trillion–and this number is likely on the rise.

Debt can sneak up on all of us, especially given life’s range of expenses. Student loans, vehicle financing, and mortgages may grant education, mobility, and home ownership, but they still all equate to debt.

Luckily, if you are struggling with debt management, there are options. One of these is debt consolidation.

How does debt consolidation work, and is it right for you? In this post, we answer these questions and more.

Keep reading for insight!

What is Debt Consolidation?

Most people accrue debt from a variety of sources. You may, for example, have credit card debt in addition to an auto loan or home mortgage.

This is very common, and it’s not necessarily a problem. It is possible to have “healthy debt” if you are a responsible borrower and if you can comfortably make your monthly payments.

Yet healthy debt can be hard to come by. Plenty of loans have high-interest rates, which can quickly get burdensome and keep you from saving what you need to be saving!

A lot of people also juggle multiple monthly payments. It can be tough to meet these, especially if you’re living paycheck to paycheck. (In fact, most Americans do!)

Unexpected situations such as family emergencies or medical expenses can be an additional challenge. These can add more to your debt and stress levels.

If you find yourself missing payments on any of your loans, you may face late payment fees. Credit card balances are also subject to potentially high-interest rates.

Debt consolidation strives to alleviate the stress of these potential situations. When you consolidate your debt, you lump your debt into one, single loan. This results in just one monthly payment and–in most cases–less interest due.

How Does Debt Consolidation Work?

Debt consolidation sometimes sounds too good to be true. How does it work?

First, it’s important to note that there are, in general, two ways to consolidate debt: with a credit card balance transfer or a debt consolidation loan.

Both of these have the same goal, which is to get all of your debt into one monthly payment. Plus, they also strive to reduce interest and fees.

Credit Card Balance Transfer

For people with a lot of credit card debt, this is a great means of consolidating. Users simply transfer all of their debt to one credit card. They must then pay off this balance within a given time frame.

Most people will seek out new cards that offer a 0% balance transfer APR and/or a $0 balance transfer fee. Plenty of credit cards offer these terms!

These terms mean that balance transfers won’t be subject to any fees. Once you transfer a balance, you won’t have to pay interest on that balance for a given period of time (sometimes up to a year).

If you aren’t eligible for such offers for any reason, have no fear. You can always transfer your credit card balances. These, however, will be subject to APR and/or transfer fees according to your card’s terms.

For this reason, identify your card’s balance transfer terms before you make a decision.

Debt Consolidation Loan

Another way to consolidate your debt is to take out a debt consolidation loan.

With this, borrowers take out a loan valued at their total debt. Generally, this loan is fixed-rate, meaning that its balance will have the same interest rate for the entire repayment period.

With this debt consolidation loan, borrowers pay off all of their existing debt. They will then work on repaying that loan in a given amount of time, generally at a lower interest rate.

Debt consolidation loans are ideal only if they do offer lower interest rates and fees than a borrower is paying on other loans.

You can get debt consolidation loans from a variety of sources. What’s more, they don’t have to be called a “debt consolidation loan” to count. Low-interest personal loans can also suffice.

Is Debt Consolidation Right for You?

Debt consolidation can be a relief for most borrowers, especially when it comes to reducing payments, interest, and fees. But is it right for you?

In general, debt consolidation is ideal for people who could benefit from a single monthly payment (rather than several).

It’s also the right choice for individuals who aren’t 100% drowning in debt. In general, your debt shouldn’t be more than half of your current income. If it is, it will be really tough to pay off that debt, even after it is consolidated!

Credit score can also play a role. In general, people with good to excellent credit are more eligible for 0% balance transfer terms on credit cards and low-interest consolidation loans.

If you have a lower credit score, you may struggle to find a consolidation method that actually saves you money.

It’s also important to have a plan in place once you do consolidate your debt. This plan should incorporate income sources and repayment terms.

Remember: debt consolidation doesn’t get rid of your debt. It only reorganizes it, in an attempt to reduce interest paid.

Next Steps

If you’ve decided that debt consolidation is right for you, begin by choosing how you wish to consolidate your debt. Is credit card consolidation right for you, or is a debt consolidation loan the way to go?

Next, start researching. Take your time to identify the best balance transfer terms and/or low-interest consolidation loan.

If you do intend to take out a loan for debt consolidation, browse lenders wisely. There are a lot of scams out there when it comes to debt consolidation, so look only for reputable lenders.

We also recommend inspecting your credit score before you hunt for offers. Remember: the higher your score, the better for securing terms likely to make debt consolidation worth it.

Final Thoughts

How does debt consolidation work? Debt consolidation involves lumping all of your debt into one loan to reduce payments and interest.

In general, debt consolidation can be a useful tool for individuals with debt that doesn’t surpass half of their income.

Are you ready to consolidate your debt? Apply for a loan now!

7 Life-Saving Tips That’ll Raise Your Credit Score Quickly

Do you want to raise your credit score quickly? If you follow these tips, you'll see improvement in your score in no time.

Do you want to raise your credit score quickly? If you follow these tips, you’ll see improvement in your score in no time.

7 Life-Saving Tips That’ll Raise Your Credit Score Quickly

16% of Americans have a credit score of below 579. This is the lowest level of the FICO score and is categorized as “very poor”.

A poor credit score can have a serious impact on your personal life and can affect your business negatively as well.

While no one can guarantee that you will hit an exceptional score, there are steps you can take to improve your credit score.

Here are seven tips to raise your credit score quickly.

1. Check Your Report for Errors and Omissions

The very first step to take is to get a copy of your credit card report. This is the only way to know where you stand before you figure out the specific actions to take to make things better.

This is, however, not all you will be doing with your report. Go through it carefully, checking for any error and omissions.

Look for things like a repaid debt that’s been listed as a default or a loan you repaid on time that is not listed.

If you identify any of these issues, move to have them corrected. This action in itself can add a few points to your rating.

2. Negotiate on Outstanding Balances

You will be surprised at how helpful your creditors can be. Unfortunately, if you never ask, you will never find out.

If you are having trouble making payments, make contact with your credit card issuer and communicate this with them.

Most providers have temporary hardship programs you can take advantage of. The benefit of this is that you can have your repayment amounts reduced until you get back on your feet.

Smaller, more manageable installments mean you can pay a lot more comfortably. This is better than skipping payments and having a creditor send a negative report that sheds a few points off your score.

3. Get Added as an Authorized User

This is a great way of giving your credit score an immediate boost. This works particularly well if you are just starting out and have little information on your credit rating.

You do this by getting someone with a high credit card limit and an even greater repayment history. Their card issuer sends them a card with your name on it.

Legally, you are not obligated to make payments on any debt accrued on the card. But its usage reflects positively on your credit score.

The key is finding someone with above board transactions. In a sense, you inherit the person’s positive credit history.

However, not all credit card companies report authorized users. Before you get on it, do your research and find out if it will be reported.

4. Ask Creditors to Delete Late Payments

It’s not uncommon to fall behind on payments from time to time. However, these small mistakes lower your credit score.

If you are in good standing with your creditors, it does not hurt to request them to delete some of the reported late payments. Financial institutions regularly communicate with Credit Referencing Bureaus, and all it would take is a quick phone call on your behalf.

If the request goes through, then you will have fewer negative reports, which will add some points to your credit rating. Nevertheless, try and restrict your late payments to 30 days. Creditors will not report late dues failing in this time frame.

If your issue is forgetfulness, rather than availability of funds, you can have your banker or employer make direct payments if this facility is available. If not, there are numerous software tools you can use to remind you when your payments are due.

5. Old Debts Can Raise Your Credit Score Quickly

You might be eager to forget about your car loan or student loan debts once you make the final payment.

However, as long as you completed your payments promptly, those records may help your scoring. The same is true for credit card debt.

All you need to do is keep these debts on your record. If they were entirely left out, then provide all the information to the credit Reference Bureau so they can use it to calculate your credit score.

Bad payment histories are deleted with time. However, bankruptcies stay on your report for 10 years and late payments for seven years. You don’t have much leeway with these.

6. Watch Your Credit Utilization Rate

Credit utilization is the amount of credit card balance you have compared to your credit limit.

This is the second largest factor affecting your credit score. The first is your credit repayment history.

The more credit you use on your credit card, the further down your credit rating drops. This trend indicates you are spending a significant portion of your income to repay debt, which makes you likelier to default on payments.

The best credit utilization is 0, which means your credit card limit is untouched. This defeats the purpose of applying for a credit card in the first place.

As a rule of thumb, keep your credit utilization ratio at 30%. This means using less than 30% of the credit limit availed to you. Anything above this can cause your rating to drop.

Under the FICO system, people with the highest scores have a utilization rate of 7%. The lower your utilization, the better.

7. Jump on Score Boosting programs

The average age and number of accounts you have held are an important consideration in evaluating how you handle debt.

This tends to disadvantage people with a limited credit history.

UltraFico and Experian Boost allow people with limited credit histories to puff it up using other information.

Experian requires access to your online banking data and allows Credit Referencing Bureaus to add utility payments to your history.

In the same way, UltraFico allows you to give permissions for savings and checking accounts to be used alongside your report when calculating your credit score.

Consistency Is Key

All in all, while it is possible to raise your credit score quickly, expect a few bumps along the way and allow yourself some time.

At First Financial, we understand that while you work on your credit rating you might still need help from time to time. No matter your credit score, we have a financing solution for you. Contact us today for more information.

When and Why to Use a Personal Loan to Buy a Car

Given that they’re secured loans, auto loan interest rates can be low, making them the obvious choice for buying a car. Still, there are certain situations where a personal loan for a car purchase makes sense, too.

First, ever seen a line of cars outside of your favorite grocery store? They’re all for sale, and often several buyers are milling around looking to get a cool ride at a great deal. Sellers always want money immediately, and they certainly don’t want to mess around with being paid over months. That means you need the cash on hand in the form of a cashier’s check. The online personal loan puts the funds in your checking account within days. If you have it ready to go when you make an offer, you have a better chance of getting the car.

Then, if tail fins and hood ornaments are your thing, you have classic cars on the brain. Vintage collectors know that lenders hesitate to finance a car if it’s under a certain age or is over 200,000 miles. Personal loans come in handy to snatch that old Corvette or Mustang from the market.

Finally, low-credit-score borrowers can sometimes get lower interest rates when they go the personal loan route. Some lenders, like First Financial, specialize in providing personal loans to those with credit challenges.

Online lenders have the fastest, easiest processes for winning personal loans. You find out in minutes how much you qualify for and get the money the next day in most cases. Have more questions? Review our personal loan FAQs. Ready to apply?

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What personal loan amount can I get?

Happy merchant avoiding EMV chargebacksIn general, personal loan amounts range from $2,000 to $50,000.  Borrowers with credit scores over 680, low debt utilization and robust income win amounts toward $50,000. Those not hitting those marks tend to get less. What are the criteria for determining personal loan amount?

It’s certainly not what you need, no matter how much you need it. Your wedding expenses bill of $30,000 or your remodel estimate of $50,000 doesn’t win you that amount automatically. The amount you can borrow with a personal loan depends on your credit score, your debt-to-income ratio and the purpose for the debt. Lenders evaluate how much you’re most likely to pay off, not what you need. Of course, those with higher credit scores will get better rates, but even those with fair, poor and bad credit can qualify for personal loans should their DTI and borrowing purpose warrant it.

Since 2012, lenders have been assertive about asking the purpose of the loan. Unlike with a quick cash advance, lenders are more generous when the purpose may strengthen the borrower’s financial health. A remodel or debt consolidation put a twinkle in lenders’ eyes.  Lenders actually consider some purposes frivolous these days. They’ve been known to turn down vacations, hot tubs, and other non-essentials, particularly if DTI is high. In the end, however, most consider the purpose of the personal loan an “influencing” factor rather than a primary one.

The debt-to-income ratio measures the amount going to debt service every month compared to the income coming in. A good debt-to-income ratio is 35 percent or below. At just eight points higher—43 percent—most lenders will not approve a borrower for a loan. Debt includes personal loans, student loans, car loans, mortgages and credit card bills. Your cable bill, rent, and car insurance do not figure into this debt calculation. Calculate your debt to income ratio and know your credit score so you can understand whether your loan amount offers are the best you can get.

A+ Rated First Financial Specializes in Low-Credit-Score Personal Loans

You may be surprised to learn that different lenders like to specialize in niche loans and borrowers. Some go for very short-term loans with high amounts. Others want to write only loans for borrowers with excellent credit. They create loan “products” that work well for the needs of that audience and don’t want to spend the time and money finding clients in other niches.

Rated A+ by the Better Business Bureau, First Financial has developed a specialty in serving those with fair, poor and bad credit scores—also known as “subprime” borrowers. We get you the money you need, all in the comfort of your home. You will know whether you qualify in five minutes or less with NO IMPACT to your credit. Apply today!

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How to Get a Personal Loan for a Remodel

There is nothing like staying at home for real comfort.

-Jane Austen

a man nailing a board in a home remodel

Home has a magical place in Americans’ hearts, and lenders know it.

Because much of the U.S. economy is built on home ownership, the federal government encourages banks to lend to homeowners looking to remodel. If you want to get a personal loan for a home remodel, rest assured, many lenders will be happy to help. Interest rates on personal loans range from as low as 3.49% to as high as 36%. On average, they run from 10% to 32%.  Those going for a 32% loan typically plan to remodel the house, sell it fast and repay the loan as quickly as possible.

Today’s remodeler can get more money than ever (even with bad credit), but finding the right deal has gotten challenging. Use these guidelines to get clear on your needs and limitations before evaluating different lenders. Your first step is understanding how much you will need.

A Shortcut to Your Estimated Remodel Costs

HomeAdvisor.com provides estimates of how much your remodel will (or should) cost. It gives you the high, low and average prices. You can even fill in your zip code to get the most accurate figures. Lenders will ask for an estimate and accounting of your costs. They will also want a bid from a contractor that specifies labor, materials and other costs.

Create a spreadsheet or list of all the new features you’re looking for. In our kitchen example, a new stove can run anywhere from $400 to $5,000 for a premium gas range. In the bathroom, color-bathing with LED lights is the new rage. Get on board with your spouse or anyone else determining what will go into your remodel. Create a spreadsheet or list of all elements and their prices using a checklist from the internet that focuses on your specific room. Baseboards may be boring, but they cost money and that should be figured in (plus they make a room look really finished!)

Some costs homeowners tend to forget include:

  • Permits
  • Equipment rental
  • Clean-up and hauling charges

Going to a contractor with a spreadsheet of remodel elements sends the message that you know prices. When he or she then estimates labor, you can check those figures against. Labor typically runs 30 to 35% of the entire remodel. Once you get all potential charges, add 20% to 30% because, as contractors often say, “there’s always a wrinkle in the rug.” Unexpected issues will arise.

Elements that Figure Into Your Loan Amount and Terms

Lenders consider two elements when evaluating how much of a personal loan you can get for a remodel: your credit history and your income

To prepare for lenders’ offers (several is better than one), use CreditKarma or another service to uncover your credit score. The highest loan amounts and best interest rates go to those with good or excellent credit (no late payments in the last year and credit utilization (LINK to other blog post) 50% or lower). Still, as mentioned above, lenders like home remodeling loans because the federal government likes them. Therefore, even those with fair credit can get a personal loan for a remodel. You’ll just pay more in interest and possibly get a smaller amount.

To lower their risk, lenders evaluate your ability to make your monthly payments by examining how many other debts you currently have. They add up your monthly credit card, auto and student loan payments and then divide that figure by your monthly gross income. Many banks see a debt-to-income ratio or DTI of 35% as manageable. They recognize that you have some spending money left after paying your bills. They want this extra spending money to come to them, and will be eager to provide a personal loan.

A DTI of between 36% and 49% doesn’t mean you won’t get a loan. Lenders may want you to have a cosigner. Make these calculations before you apply for a personal loan so you can be prepared to select the right loan with the best terms.

Ready to Apply

The last piece of information you need when choosing a personal loan is the interest rate and fees the bank will charge. Lenders do NOT do a “hard pull” or serious credit inquiry when evaluating personal loan applicants. Instead they run a “pre-approval” or “pre-qualification” check.  This means you can review several offers before making a decision without any impact to your credit score. Once you select your lender, they make the hard pull ONCE.

A+ Rated First Financial Has Personal Loans for All Credit Scores!

Don’t let important home remodels go. A leaking roof can cause damage that multiplies your costs. First Financial has helped arrange tens of thousands of low-cost personal loans for home remodels. We have MORE loans for MORE applicants because working 100% online helps us reduce costs. Apply today!


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