Debt consolidation loans are effective in getting you out of debt but you have to realize that there are qualifications to be met. These are important so that you can maximize the benefits and potential of getting a loan to help pay off your other debts.
The thing about this type of debt solution is you have to get a low interest loan. This is one of the ways that you can get a lower monthly payment – at least, it should be lower than your current. Failing to do so will defeat the purpose of using debt consolidation as your solution.
There are two ways for you to get a low interest rate on your loan. You need to have a good credit score or a collateral. But what will you do if you do not have both?
You may want to try out peer-to-peer lending. Instead of borrowing from financial institutions, you are actually borrowing money from private individuals and investors. It is like borrowing from a community of investors. This is continually gaining popularity because it is simple, effective and fast.
This type of debt consolidation loan is preferred because it can offer a low interest rate even for those with a bad credit history. It is not as low as the interest rate of secured loans or good credit score holders borrowing from banks and lending companies. However, it is definitely not as high as payday loans. In terms of the credit card – they are usually at par. The interest rate of P2P (peer-to-peer) ranges between 35% to 7%.
Your credit score will still be taken into consideration of course. P2P lending is managed by a third party website. They run the whole program, having lenders on one side and borrowers on the other. When you apply as a borrower, you need to fill up a form and submit it online. The company behind the website will conduct a credit check and will assess the risk you will pose – much like how banks and other lending companies would. They will rank your risk factor and individual lenders will check this before they decide to lend you their money.
There is a possibility that your money will be funded by more than one lender. It will be third party company’s responsibility to gather your borrowed money and to collect from you. They will also take charge of sending payments to the respective lenders who funded your loan.
The thing that makes P2P lending ideal is the fact that the lenders involved will not be too strict about their money because they will be investing their disposable income (at least most of the time this is the case). It will not be like the banks wherein they treat it as a primary business so collecting from you will be done aggressively.
If you are wondering if it is effective against your debt – well that depends on whether you have the financial capabilities to pay it off and if you are disciplined to see it through. So before you really push through with this type of loan, make sure that you have scrutinized your own finances. There are other debt relief options and you should consider them carefully to find the perfect solution for your troubles.