If you’re like the millions of Americans currently in debt, then you may be considering your options for repayment. Personal loans may present a path to paying down your debt, but you’ll want to consider several factors.
- Your credit score. While a personal loan may seem like a good option to pay down your debt, if your credit score isn’t high enough, you’ll either be denied or you won’t get a low enough APR for it to help in your repayment.
- How high your debt is. Again, you might get denied depending on how high your debt is, or you may only get approved for a certain amount of consolidation. In that case, you’re then left still making multiple payments. Or, you may get an interest rate that is no better than what you’re paying on your current debt.
- Utilizing new credit. When you take out a personal loan, you’re taking out a new line of credit—which means you’ll get dinged on your credit report. While this is a short-lived hit, if you’re falling behind on payments, this might not be the best option.
According to Bankrate.com, to take a personal loan out you typically need a credit score rating of 670 (considered average or good by FICO) or over. The average score we see is a 605. That’s why a debt management program might be the better option, especially if your credit score is average or lower.
When you enroll in a debt management plan a counselor will help you create a budget and work with your lenders to consolidate your credit cards/unsecured debt into one monthly payment. They’ll also work to lower your interest rate, so you can pay off your loan in three to five years.
With the average APR for clients at 22% before enrolling in a DMP and 6.8% after enrolling, you can have the confidence your loans will be paid off more efficiently and more quickly.