Debt Consolidation and Debt Consolidation Loans Options in California
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California Debt consolidation puts multiple debts into one single monthly payment. It's a great way to consolidate 3,4 or even 10+ monthly payments to one account. Even better if you qualify for a low interest rate. Debt consolidation loans are designed to reduce your overall or total debt amount and reorganize it. So, you can control it and pay it off faster.
How Much Could I Save Using Debt Consolidation in California
The first step to consolidating debt is to determine how much debt you plan to consolidate and how much you can afford to pay off each month. Let's say you currently have $15,000 in credit card debt spread over three credit cards, each with 18.35% APR.
One credit card has an outstanding balance of $3,000, another of $7,000 and the third of $5,000.
Assuming you make equal payments on your credit cards, with a $15,000 loan at 12.92% APR and a 48-month term, you could save $3,207 in interest by moving over your debt from your credit cards.
Taking 3 monthly credit card payments down to one loan payment.
What happens after I consolidate my debts
Believe it or not, we get this question quite often. To sum this up for you, Instead of multiple monthly payments. With each having different interest rates and fees. You now just have one! You'll receive the money as a loan, use it to pay off your other credit lines. Then you'll only have to pay the loan payment each month and not the credit cards or other debts.
When Debt Consolidation in California is a smart move
Success with a consolidation strategy requires the following:
Your monthly debt payments (including your rent or mortgage) don't exceed 50% of your monthly gross income.
Your credit is good enough to qualify for a 0% credit card or low-interest debt consolidation loan.
Your cash flow consistently covers payments toward your debt.
If you choose a consolidation loan, you can pay it off within 5 years.
Here's a scenario when consolidation makes sense: Say you have four credit cards with interest rates ranging from 18.99% to 24.99%. You always make your payments on time, so your credit is good. You might qualify for an unsecured California based debt consolidation loan at 7% — a significantly lower interest rate.
For many people, consolidation reveals a light at the end of the tunnel. If you take a loan with a three-year term, you know it will be paid off in three years — assuming you make your payments on time and manage your spending. Conversely, making minimum payments on credit cards could mean months or years before they're paid off, all while accruing more interest than the initial principal.
When debt consolidation in California isn't worth it
Consolidation isn't a silver bullet for debt problems. It doesn't address excessive spending habits that create debt in the first place. It's also not the solution if you're overwhelmed by debt and have no hope of paying it off even with reduced payments
If your debt load is small, you can pay it off within six months to a year at your current pace and you'd save only a negligible amount by consolidating, don't bother.
Try a do-it-yourself debt payoff method instead, such as the debt snowball or debt avalanche.
If the total of your debts is more than half your income, and the calculator above reveals that debt consolidation is not your best option, you're better off seeking debt relief than treading water.
What types of debts can I consolidate in California?
Typically, unsecured debt can be consolidated with a personal loan. While it varies lender to lender, some types of debt, such as mortgages or car loans, might not be able to be consolidated with a personal loan.
Debts that can be consolidated
Retail card bills
Department store cards
Gas card bills
Unsecured Personal Loans (or "Personal Signature Loans")
California based Loans for which you were not required to execute a security agreement or mortgage.
Personal Lines of Credit
Finance company loans
Court judgments, when not yet enforced
Court judgments that have not yet been enforced through collection remedies such as garnishment or attachment.
(except in states that allow landlord liens)
Utility Bills (telephone, electric, gas, cable, and other utility bills)
If you are late paying your bills, the company may disconnect your phone or utilities. However, they are not entitled to any of your assets or belongings.
Cell phone bills
Home Improvement Loans (only in some cases)
Auto Repossession Overage Balances
Short Pay California based Mortgage Balances
Any other type of loan or credit that was extended without a collateral requirement
Debts that can NOT be consolidated
Home Equity Lines of Credit
Auto Loans (new and used)
Recreational Vehicle Loans
IRS Debt and Back Taxes
How debt consolidation affects credit scores in California
When you consolidate debt, you pull several levers at once that help or harm your credit. Here are some short-term causes of a credit score drop when consolidating debt:
New credit applications — The first possible damage to your credit scores can happen before you even consolidate: When you apply for that personal loan or balance transfer credit card, the lender will perform a hard inquiry on your credit, which will lower your credit scores by a few points.
New credit account — Opening a new credit account, such as a credit card or personal loan, temporarily lowers your credit scores. Lenders look at new credit as a new risk, so your credit scores usually have an additional temporary dip when taking out a new loan.
Lower average age of credit — As your credit accounts get older and show a positive history of on-time payments, your credit scores rise. Opening a new account adds a new newest account and lowers your average account age and may lower your scores for a while.
But it isn't all bad. Here are some positives for your credit scores from a debt consolidation:
Lower credit utilization ratio — This ratio, a measure of how much of your available credit you're using, may fall when you open your new debt consolidation account because it will increase your available credit. Lower credit utilization may counter some of the negative effects of opening a new account that we mentioned above.
Improved payment history — It will take some time, but if you make payments on your new California based loan on time you may see your credit scores slowly rise. Your payment history is the biggest factor in your credit scores, so you should always try to pay on time.
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