Let's get this straight right now, you can't borrow your way out of debt. But unsecured debt consolidation loans can put you in financial position to make the most of the incoming money you have right now.
To illustrate our point, imagine that you're sitting in a small sinking boat.
Plugging the holes in that boat won't get you to shore, but plugging those holes does give you the OPPORTUNITY to get back to dry land and to safety. In the same sense, consolidating your debt with unsecured debt consolidation loans gives you an opportunity for a better financial future.
Consolidating all of your high interest loans into one well thought out debt consolidation loan at a very good rate could save you tons on the amount of interest you're charged on your debts month after month. When it's time to write checks for your debt, you'll be writing smaller dollar figures. That's always a good thing.
That's one reason that The Lending Mag continues to inform you about P2P lending and teach you what it's all about. You need to know that good debt consolidation loans should always have a fixed interest rate, and your loan principal should go down as you continue to make your loan payments, that's the way to stop your high interest credit card debt from spiraling out of control. The major P2P lenders also offer online electronic payment systems that help you manage your entire consolidation loan directly and with ease.
If you want to gain insight on your debt consolidation options, you can go down to the section titled “What is Debt Consolidation?” If you already understand that unsecured debt consolidation is the right choice for you, here is a preview of 3 of the best unsecured debt consolidation loan companies by our research:
- Avant Unsecured Debt Consolidation Loans
- Prosper Unsecured Debt Consolidation Loans
- Lending Club Unsecured Debt Consolidation Loans
Next, we’ll give you the specifics on each lending company individually. Later we'll describe our methodology for selecting these 3 lending websites as the best debt consolidation loans online. We’ll also explain what debt consolidation is for you, the different types of debt consolidation loans available, exactly where to get debt consolidation loans, great alternatives to debt consolidation, and how to avoid debt consolidation scams.
What Is Debt Consolidation?
Debt consolidation is exactly what it sounds like. When you consolidate your outstanding debts with unsecured debt consolidation loans, you’re taking on a new, bigger loan in order to pay off a lot of existing debts. Here's the major advantage debt consolidation loans...
Instead of writing checks to a bunch of different creditors, you’ll pay a single bill for your debt consolidation loan. Another advantage is that your monthly loan payments will probably be lower under the new consolidation loan than the combined payments of your past debts.
Unlike debt settlement, you don't actually lower the loan principal amount that you owe — you'll still be paying out the full amount of your debt.
Pros & Cons Of Debt Consolidation
Don't be blind, not all unsecured debt consolidation loans are equal and debt consolidation loans are not without risks. Finance experts advise debtors to thoroughly study consolidation loan options before making a decision. Some people are even better off avoiding consolidation loans unless they’re legitimately struggling to make the bare minimum payments on debts each month and are honestly ready to turn over a new leaf with their spending habits. It makes no sense to patch up holes in the boat when you are going to poke even more holes into it later on.
Here are your pros and cons of unsecured debt consolidation loans:
Pros of Unsecured Debt Consolidation Loans
- Short-term relief: One unsecured debt consolidation loan at a lower interest rate, spread out over a longer term, can greatly cut the amount of money you have to pay out every month.
- It’s easier to stay organized: It's difficult to keep track of a ton of different bills and their different monthly due dates, this leads to more late and/or missed bill payments, but it’s much easier to remember the date of a single bill.
- No damage to your credit score: Unsecured debt consolidation loans keeps your credit intact since you’re continuing to pay off all of your debts. This is not as likely to happen with a debt management plan, debt settlement, or a bankruptcy settlement.
Cons of Unsecured Debt Consolidation Loans
- Long-term pain: Your lower monthly loan payment is usually the result of a longer payment term agreement, not simply the result of lower interest rates. In all actuality, instead of paying a lot of money out over a short time-span, you’ll be paying out a smaller amount of money over a longer period of time. And here's the catch, if you're not taking advantage of a low-rate P2P debt consolidation loan, you may end up paying out much more in interest over the long term of your loan. That's not the perfect answer to the financial problem.
- Big risks, depending on your new loan: If you use a secured loan to consolidate your debts, the collateral associated with that loan (for instance, your home) will be at risk if you don’t make your loan payments. Falling behind on an unsecured loan isn’t as immediately harmful because you won't lose your property or belongings to the lender, but it could still greatly damage your credit score and future financial opportunities. It's important to pay what you owe and keep a good name.
- You’re fighting debt with debt: While debt consolidation often works out well for the fiscally disciplined, bad spending habits might be the reason you’re considering an unsecured debt consolidation loan in the first place. If you don’t change your financial habits, you're very likely to end up much deeper in debt than you were before you took out a debt consolidation loan.
Understanding Your Options For Unsecured Debt Consolidation
Unsecured debt consolidation is a means of packaging multiple debts together in a way that makes them easier to pay off. Unsecured debts are personal debts for which there is no physical collateral, like homes and automobiles. Medical debt and credit card debt are two popular examples of such debt. Borrowers that are willing to do a bit of research will find many reputable debt consolidation companies, and several different approaches to handling debt issues.
Approaches To Unsecured Debt Consolidation
Common approaches to handling unsecured debt consolidation fall into 2 broad categories:
- Debt consolidation loans: With this approach to unsecured debt consolidation, you borrow money from your bank or a debt consolidation firm and use that money to pay off your credit bills. Consumers need to use caution with this approach. Why? Because loans for debt consolidation can often come with high fees, costs and risks. Think about it, if you're in serious debt it'll be difficult to get respectable loan terms for a debt consolidation loan. And if you do get a loan to pay off your high interest charge cards, you'll likely face the temptation to run up your credit cards again—in which case you'll need to pay off the new balances on the credit cards on top of making regular payments on your debt consolidation loan.
- Debt management programs: This is normally associated with non-profit debt relief agencies, a debt management program is a method of unsecured debt consolidation that doesn't require the borrower to borrow more cash. The borrower makes monthly payments to the debt relief agency, and the agency in turn makes monthly payments to the consumer's creditors.
Another tactic, debt settlement, is sometimes confused with debt consolidation but is actually very different. With a debt settlement solution, a settlement company tries to negotiate with a consumer's creditors to get them to accept a pay-off amount that's less than what is actually owed. Creditors can and often do refuse to participate in such debt settlements, and these settlements can often be very damaging to a debtor's credit score rating with serious tax implications even on the debt amount that was forgiven.
3 Best Unsecured Debt Consolidation Loans - The Solution
#1: Prosper Unsecured Loans
Prosper, the very first American online peer-to-peer lender, is among the 3 best choices for fast unsecured debt consolidation loans.
Peer-to-peer lending is a form of crowdfunding that allows several individual U.S. investors to fund a loan and earn a good return. Prosper offers unsecured personal loans from $2,000 to $35,000 and competitive APRs from 5.99% to 32.99%.
Though Prosper Marketplace requires a credit score of 640+, they take into account a wide range of factors other than your credit rating when determining your APR. The Prosper loan website is easy to navigate, with clearly disclosed rates and fees. Prosper charges a very reasonable origination fee of 1% to 5% of your peer-to-peer loan, and there are fixed fees for late loan payments ($15 or 5% of the outstanding amount) and unsuccessful loan payments ($15 per occurrence).
- Loans available in 47 states
- You can get unsecured debt consolidation loans funded up to $35,000
- They offer competitive interest rates
- They have a thorough, transparent lending website with easy-to-find rates and fees
- Prosper looks at more than your credit history when determining APR
- No check-processing fee
- BBB accredited with A+ rating
- Will allow only 36- or 60-month terms on unsecured debt consolidation loans
- You might have to wait a week or more for your loan to be funded
#2: Lending Club P2P Loans
Lending Club is the biggest peer-to-peer lender in the United States. Unsecured personal P2P loans from Lending Club range from $999 to $35,000 at APRs from 5.99% to 32.99%. Their peer-to-peer lending site is clean and transparent, with easy-to-find lending rates and fees. They also give you a clear description of the P2P lending process, and a streamlined rate-quote tool that doesn't affect your credit.
Getting unsecured debt consolidation loans from them has recently become a bit easier as Lending Club only requires a minimum credit score of 600 and only has slightly stricter criteria for giving out peer-to-peer loans than Prosper Marketplace, including a stricter debt-to-income ratio and more reliance on credit history. Its fees are very similar to Prosper’s, but unlike Prosper Marketplace, Lending Club charges a $15 check-processing fee every time borrowers pay with a check.
- Lending Club loans are available in 48 states
- Lending Club funds unsecured personal loans from $1,000 up to $35,000
- Competitive loan interest rates on their unsecured debt consolidation loans
- Thorough, transparent P2P website with easy-to-find rates and fees
- BBB accredited with A+ rating
- They'll only allow 36- or 60-month term loans
- You may have to wait a week or more for your loan to be funded
- Lending Club is slightly pickier about approving borrowers
- They charge a check-processing fee
#3: Avant Loans For Lesser Credit Scores
One of the major advantages for people looking for unsecured loans for bad credit is that Avant focuses on loans for borrowers with slightly lower credit scores than Lending Club and Prosper Marketplace.
Unlike those two peer-to-peer loan companies, Avant Loans is not a peer-to-peer lender and instead directly funds each debt consolidation loan itself. That can be an advantage for borrowers who need cash more quickly because Avant pays out approved loans in as little as a day, while getting loans through peer-to-peer lending for bad credit applicants can be tough.
Another big bonus is that there are no loan origination fees with Avant's unsecured debt consolidation loans. BUT, you will be subject to higher APRs with Avant, which means they probably won’t be the best loan option for borrowers with good to excellent credit scores. Not everyone has good credit though, Avant is certainly one of the best loan companies for bad credit.
Avant recently made their unsecured debt consolidation loans available to more eligible states. Avant currently operates in 47 states: Alabama, Alaska, Arizona, Arkansas, California, Connecticut, Colorado, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Vermont, Wisconsin, and Wyoming.
- Unsecured debt consolidation loans available in 47 states
- More flexible payment terms, ranging from 12 to 48 months
- High borrowing limit up to $35,000
- Loan funds are often available in as little 24 hours
- No loan origination fees or unsuccessful payment fees
- Higher advertised loan APRs (9.95% to 36%)
- Avant has a shorter grace period (10 days) and larger fees ($25) for late payments in most states
Get Off The Credit Card Treadmill With Unsecured Debt Consolidation Loans
Unsecured debt consolidation loans don't work for everybody. But you know yourself and your situation better than anyone.
If you’re making minimum monthly payments on big credit card debt, chances are that you’re most likely paying too much interest, and not paying down the actual principal by much. This is the trap too many Americans find themselves in.
Paying monthly on credit card bills like this won’t make much of a dent in your overall debt. And if you happen to miss one or two payments or exceed your limit, your credit card interest rates will shoot up even higher. The smart move may be to replace your credit card debt with an unsecured debt consolidation loan, these unsecured debt consolidation loans are set up to where your interest rate won't change and your loan principal can be effectively paid down and eliminated as you make fixed monthly payments.