Which Company Should I Use for a Low Rate Debt Consolidation Loan?

Question:

Dear Steve,

I have a credit card debt of $11,000 and I would like to get a loan to pay off my debt and make one lower payment for the loan

Which company or lender should I use for that loan that offers low rate interest?

Carmen

Answer:

Dear Carmen,

That is kind of a loaded question. There are all sorts of lending sites out there like LendingClub.com“>LendingClub which provide unsecured personal loans you can use to consolidate your debt.

But the most important question here is what your credit score is. A low credit score will get you a higher interest rate. The rate may be higher than what you are paying right now.

You can use free money to pay off your debt by using a balance transfer offer from another credit card and making sure you pay the balance off in full by the end of the introductory period. If you don’t pay the balance off before the regular rate kicks in then you will probably be stuck back on a high-interest rate credit card. You’d be surprised how many people don’t pay the balance off.

In order to find the best loan for you then you are going to have to pay attention to the math. A lower interest rate but a long time to repay the loan can result in high overall interest paid.

The three numbers you want to pay attention to are:

  • Does the loan involve and fees? Even balance transfer offers at no interest will often charge a transfer fee. This just adds to your balance.
  • How long is the term of the loan? As I said, a longer time to repay the loan can result in more interest being paid.
  • What is the interest rate? The interest rate will be dependent on a number of factors. The most important is going to be your credit score. If you have not checked your credit score recently, you can get it for free from sites like CreditKarma.com. They even have a credit score calculator that can show you how to raise your credit score.

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

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This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.