How to get a credit consolidation loan in 6 steps

It’s a good idea to do the math before starting the application process. This way, you have an idea of ​​what you can and can’t afford ahead of time. Ultimately, the lender will decide what you qualify for, but seeing how the example might play out can help set your expectations for what you’ll get.

Use a personal loan calculator to see what kind of payment you’re looking at on a new loan. Try longer terms of five years or more for lower payments. Shorter terms of three years or less will save you money on interest overall.

For example, compare $10,000 minimum credit card payments versus two consolidation loan terms. Paying less each month will save you thousands of dollars in interest and cut years off the repayment schedule.

When comparing debt consolidation lenders, consider APRs, fees and any other benefits they offer borrowers. Bankrate is a great place to start as it can help you compare multiple lenders at once.

A note about those low ratings

Bankrate’s expert shopping trip found that the lowest personal loan rates are typically offered to borrowers with excellent credit scores of 780 or higher with shorter terms of 36 months or less.

You may also want to check with your current bank or credit union if they offer a personal loan for debt consolidation. Compare your financial institution’s rates and terms with those offered by other top lenders.

Use resources like the CFPB’s complaint database, Trustpilot and the Better Business Bureau to determine if a lender is reputable.

The answer comes from Bankrate: If lenders offer online eligibility tools, consider using them to gauge your chances of approval. You can complete the qualification process to view potential loan offers and interest rates without negatively impacting your credit score.

Prepare the necessary documents required by the lender before starting the full application. Although this varies by lender, you will generally need to provide the following:

• Proof of income. W-2s, 1099s, pay stubs or tax returns.

• Proof of who you are. Driver’s license, government-issued ID, passport or other valid ID.

• Address proof. Utility bill, lease or rental agreement, bank or credit card statement or voter registration card.

• Proof of bank account. Many lenders use a read-only access system, such as Plaid, to connect to the bank you want your loan to be applied to. They may also use this as a way to guarantee your income through direct deposits.

Once you have your documents, submit the loan application. Most lenders allow you to apply online, get a quick decision and upload supporting documents for final approval. But if you apply with a traditional bank or credit union, you may have to visit a physical branch to apply, and it may take longer to get a loan decision.

Once approved, review and clarify the terms of the loan. The lender will process the file for closing and pay the proceeds directly to your bank account. Unless you choose a debt consolidation lender that pays creditors directly, you will need to pay each lender out of your income.

Continue making your scheduled payments until each creditor shows a zero-dollar statement balance. You are still responsible for regular payments until the balance is paid in full.

There are also a number of other options for credit consolidation loans that you can consider before applying.

• Re-evaluate your budget. Track your spending for a few weeks and see if you can cut back on other expenses and use the savings to pay down debt. Consider reducing subscription services or switching to a cheaper internet or mobile plan.

• See if you can change the bill due dates. If you’ve missed monthly payments because of random due dates, ask the creditor if you can change the due date to match your other debts.

• Use a credit card for a balance transfer. Qualifying for a balance transfer card with a 0% introductory rate allows you to consolidate all of your credit card balances into one account, resulting in faster payments and savings on interest — as long as you pay off the balance before the promotional period ends.

• Home loan. If you own a home, you can borrow against the equity you have in your property, often at a lower rate than you would pay with a home equity loan. You can also spread the payment over 30 years, which can help lower payments. However, the biggest disadvantage of a home loan is that if you default, the lender can foreclose on your home.

• Seek the help of a third party. If you have a large amount of debt – more than $10,000 – consider seeking help from a credit counseling center or credit assistance company. Another option is to consolidate your debt and negotiate with creditors to find the best terms, although you may find a nonprofit credit counselor more cost-effective.

• To save. Tapping your savings to pay more than the minimum monthly payment on your loan can also help you get out of debt faster and save money on interest payments. If that exhausts your emergency savings, consider splitting your loan payment down with some savings and a small debt consolidation loan.

If you’re in a situation where you need to consolidate debt, it’s important to take an honest look at how you’re spending money. If swiping and going through credit cards is an ongoing issue, ditch them after your debt consolidation is paid off. Otherwise, you may end up with multiple personal loans, which can add more strain to your budget and cause more credit damage.

Getting a debt consolidation loan is an easy process if you have a solid job and decent credit. You will improve your chances of approval if you take some basic steps early to make sure you qualify for a personal loan.

Make sure your budget is ready for a regular monthly payment. There is no minimum payment option for a personal loan. Choose a short term that you can afford to get out of debt quickly.

If your credit score jumps a bunch, you can refinance your loan to a lower rate in the future – usually without prepayment penalties of any kind. A credit consolidation loan can be a great step in the right direction to get rid of large credit card debt.