If someone is thinking about a consolidation loan to eliminate credit card debt and to reduce their monthly payments, there is no better time than the present to make a move. All an individual must do is to find a willing lender and have a solid credit score. The trick to success is to find the right lender.
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Why Debt Consolidation Loans?
A debt consolidation loan is designed to help a person eliminate high-interest credit card debt. The concept of these loans is simple. A person takes out an unsecured personal loan and uses the money to pay their credit card balances. The less interest that the personal loan charges, the more the individual gets to keep in their wallet.
If someone takes out a personal loan with a 10% interest rate and repay several credit cards with interest rates of 20% or higher, they can save a lot of money. Even better, personal loans provide fixed repayment schedules. This lets a borrower know how long it will take for them to be completely debt-free.
The savings some people see with these loans are often considerable. In fact, according to a report from the Federal Reserve in May 2020, credit cards had an average interest rate of 15.78% compared to an interest rate of just 9.5% on 24-month personal loans.
This makes some people in tough financial situations why everyone who has a mountain of credit card debt choose a consolidation loan. Usually, the reason for this is because individuals are unable to find a lender who will provide financing at a lower interest rate. Unfortunately, in 2020, willing lenders are hard to come by.
The Impact of COVID-19 on Debt Consolidation Loans
Ever since COVID-19 swept across the nation and the planet, many lenders have pulled back. With unemployment rates going up, the economy facing serious problems, and other issues, lenders are now more cautious when it comes to giving unsecured loans. The perceived risk, along with widespread joblessness and economic uncertainty, are all attributed to this.
For many lenders, memories of the collapse of the housing market in 2008 and the negative impact it had on mortgage lenders are still top-of-mind. Some lenders are also concerned that bank regulators may look at their balance sheets and decide to take disciplinary action if multiple bad loans occur during a time of an economic downturn.
However, if someone can secure a debt consolidation loan, they can achieve lower interest rates. This is because the Federal Reserve has made the benchmark funds rate to just one percent. This is approximately half of what was being charged in the mid part of 2019.
While things are still rocky when it comes to debt consolidation loans, if someone has been thinking about getting this financial help, now is a good time to look into it. It has the potential to provide an array of benefits.