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Choose the Right Lender for Your Consolidation Loan

Choose the Right Lender for Your Consolidation Loan

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Daniel Cohen
UpdatedJun 7, 2024
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    3 min read

Shop Around to Find the Best Consolidation Loan

what type of consolidation loan are you looking for?

there are two basic types of consolidation loans, one that uses your home as security and an unsecured personal loan. the type of loan that is best for you depends on your financial situation, including your assets, income, debts, credit score and credit history.

find a cash-out refinance consolidation loan

if you have equity in your home and good credit, a cash-out refinance is a smart way to consolidate high interest debts, especially at today's low interest rates.

there are many places you can find a cash-out refinance, including the lenders that are part of the lending network, national banks, local and regional banks, credit unions, or mortgage brokers. the loan refinance market is highly competitive, so it pays to shop and receive quotes from more than one lender.

home equity loans

a home equity loan (hel) or a home equity line of credit (heloc) are other options for using your home equity that don't require refinancing your current mortgage. hels or helocs are a smart choice, if you have equity in your home, but you don't want to refinance your current mortgage.

where to find hel and heloc loans? before the mortgage meltdown, it was easy to find hel and heloc loans, as many lenders were offering them. today, many lenders have stopped offering second mortages. your best source for a hel or heloc are banks or credit unions.

Student Loan Consolidation

Federal Student Loan debt should be consolidated through the US Dept. of Education consolidation program.. Private student loans can be consolidated through an unsecured personal loan or a cash-out refinance or HELOC.

Unsecured Personal Consolidation Loan

Unsecured loans typically carry a higher interest rate than mortgage refinances, HELs, or HELOCs. In order to get a good rate on an unsecured consolidation loan, you need strong credit. Even with strong credit, the best rates on unsecured loans are almost 7%

You can find an unsecured debt consolidation loan at national banks, local banks, credit unions, and peer-to-peer lenders. If you are shopping for a personal loan and your credit is not excellent, but is improving, check out FreedomPlus.

Be very wary of consolidation loans marketed to people with bad credit, especially if they are an online lender that charges an application fee. That kind of pitch is often a way to scam people desperate for a loan.

Alternatives to Loans

A loan might not be your best option. Some debt problems are best resolved through credit counseling, debt settlement, or bankruptcy. Use the Debt Coach to find your best debt resolution option, if a loan is not the best choice.

Bills Action Plan

To find the right consolidation loan, make sure that you:

  • Check your credit score. The higher your score, the more options you will have and the better rate you will get.
  • Determine your equity position. If you own a home, find out its worth. If you have a lot of equity, consider a cash-out refinance or a HELOC.
  • If you don't own a home or have equity in your home, look at unsecured loans. Rates will be higher than on a secured loan, but could still improve your finances if you debts are high interest.
  • Shop around for any kind of loan you consider.

Dealing with debt

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Massachusetts credit card delinquency rate was 3%, and the median credit card debt was $417.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.