Which type of loan can be used for debt consolidation

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By CreditNinja
Modified on March 11, 2024

Debt consolidation is the process of taking multiple debts, such as credit card debt, student loan debt, or past due bills and combining them into a single loan. Consolidating your debt can be a great way to reduce the number of payments you make each month, save money on interest rate charges, and even get a bit of additional funding for your bank account.

The first choice to consider for debt consolidation is a direct lender personal loan. Personal loans are known for having industry-wide competitive rates and flexible repayment schedules, making them an ideal solution for debt consolidation.

Personal installment loans even have the potential to boost your credit score. As you keep up with your monthly installments and reduce the amount of debt you owe, you are improving your debt-to-income ratio as well as your payment history. These are two important factors that contribute to your overall credit score. After you have paid off your personal loan, you may see that your credit score has increased by several points or more the next time your pull a credit report!

Other types of funding you may come across in your search for a debt consolidation loan are online payday loans, title loans, or title pawns. All of these types of financing typically come with lower loan amounts, high-interest rates, and brief repayment terms. Unless you can pay back your debt consolidation expenses in a few weeks or less, these options may not be the best choice for you.

When cleaning up your debt, you may be considering either debt consolidation or debt settlement. As discussed, debt consolidation involves refinancing your debt into one manageable monthly payment. If your situation is more serious, you may look into Debt settlement.

Debt settlement involves working with a settlement company to negotiate your debt. Your settlement agent can either work towards significantly reducing your debt or completely eliminating it. While this may seem like a convenient solution, keep in mind that debt settlement may have a significantly negative impact on your credit score.

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