Online Debt Consolidation

The endgame for online debt consolidation isn’t all that different from traditional methods — you end up with a single, manageable, lower-interest payment — but it’s important to understand the process and how to choose the program that’s right for you.

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There are plenty of reasons for seeking debt consolidation.

Maybe you’re desperate to make what you owe more manageable, or you’re horrified by the high interest rates on your outstanding credit card balances. Maybe you simply want the predictability of a single monthly payment.

Want all of the above? That works, too.

Whatever motivates you, however, it’s hard to beat the convenience of shopping online for the package (a personal loan) or program (partnering with a nonprofit debt counseling agency, perhaps) that best suits you.

What is Debt Consolidation?

You have a handful of credit card debts, maybe a personal loan, and a student loan. Several have double-digit interest rates in the high teens (or low 20s), and they come due at times that are, at best, inconvenient. Debt consolidation can roll all those debts into a single new loan, often at a lower interest rate that allows you to become debt-free faster; in a best-case scenario, you emerge with these unsecured debts in a single package with a lower payment and a single payment date.

What are you waiting for?


Online vs. Traditional Debt Consolidation

You’re eager to get your debts, interest rates and payments under control (accompanied by curbing the unsustainable spending habits that got you there). Great!

Now, you could try calling around — debt-counseling agencies, banks, credit unions, even those debt settlement companies you hear on radio commercials — and wind up spending hours on the phone being shuttled from one specialist (or, in some egregious cases, from one huckster) to the next.

The upside: You will talk to lots of other humans and you’ll get plenty of ideas about how you might consolidate or otherwise manage your unsecured debt.

The downside: Turning all that information into an actionable spreadsheet with a clear and decisive plan may not produce easily managed results. And you’ll be out all those hours of telephoning.

There is an alternative. Some might even call it a better way.

This is, after all, the 21st Century — the Digital Age. Opting for an online solution lets data-driven experts (preferably representing a nonprofit debt-counseling agency) crunch your numbers in apples-to-apples comparisons. You converse in live texting conversations with debt counselors, put your numbers into a calculator designed to distill data to the consumer’s advantage, and — voila! — a plan is recommended.

Maybe it’s a consolidation loan. Maybe it’s another program entirely. Maybe it’s a hybrid involving several approaches. Whatever the solution, it’ll be laid out with precision that can be saved and reviewed against other recommendations.

Online Debt Consolidation Process

In post-Great-Recession America, revolving, unsecured debt — that is, debt not backed up by something tangible, such as a house or a car — is substantial and growing. The average household has $5,700 in credit card debt; including households where balances are paid off monthly, the figure is even more daunting: $9,333.

And until it paused in the winter of 2019, the Federal Reserve’s incremental boosting of interest rates didn’t help those carrying a balance get out from under their debt load. Average interest rates on credit card balances have surged nearly two points since February 2018, to a record 17.55%. Yours may be substantially higher.

Small wonder plenty of consumers consider debt consolidation — particularly online debt consolidation — a solution to an increasingly pressing problem. There’s a lot to love, after all: a single monthly payment that most likely will be lower than the sum of your current minimums, and a lower overall interest rate, giving you a chance — assuming newfound budgetary discipline — to pay off your debt sooner.

The online process begins with searching and shopping. Punch in “debt consolidation” to your favorite search engine and go.

You’ll find plenty of opportunities to apply, all asking essentially the same questions:

  • How much debt do you want to consolidate?
  • Who is applying?
  • What is your annual income?
  • What is your credit score?

The higher your provable income and the better your credit score, the more likely you are to qualify for the full amount you’re seeking at an advantageous interest rate. Some new-wave debt-consolidation lenders — particularly peer-to-peer lenders — take into account the length of your credit history, the type of job you have, and your educational background.

Do yourself a favor. Shop around.

Choosing an Online Debt Consolidation Company

Counselors working on behalf of reputable credit counseling agencies can help you create a plan to better manage your money and budget for debt payments. It’s called a debt management plan.

Understand, this strategy doesn’t actually reduce your debt, but it carries fewer risks than debt consolidation or debt settlement.

Whatever your choice, be wary as you enter the process. Many online debt consolidators are far more interested in profiting from your financial troubles, and not so much in helping you resolve them. Avoid companies that want money up front, or those that boast they can settle your debts for pennies on the dollar.

Make certain the company you choose has a reputation for reliability and responsive customer service, and is compliant with Federal Trade Commission mandates.

Understand the assorted methods used by companies that perform debt consolidation: Besides debt consolidation loans, there’s debt management, debt settlement, debt relief and debt negotiation. Each is a viable method to achieve debt consolidation, but each comes with downside pain.

Debt relief and debt negotiation are part of almost any third-party plan. The key distinctions, then, are debt management and debt settlement.

Debt management often operates in conjunction with credit counseling. Professionals provide financial counseling through a credit counselor. At the same time, the debt management company (usually a nonprofit) contacts the clients’ creditors and works with them to lower interest rates and restructure payment schedules.

Debt management programs won’t thump your credit score, but your credit options might be limited while you’re in the program. They will ask you to give up all but one credit card and that is only to be used in emergency situations.

Top drawer debt-management companies (all nonprofits) include:

  • InCharge Debt Solutions, which vows to simplify clients’ lives by lowering interest rates, reducing monthly payments, eliminating fees and over-limit charges, designing a realistic budget, and ending debt collectors’ harassing calls.
  • Cambridge Credit Counseling, which boasts “simple, safe debt relief services” that reduce credit card interest rates by two-thirds, slice payments by a quarter, and complete the program in 48 months or fewer.
  • GreenPath Financial Wellness, which promises respectful, compassionate, professional people-centered guidance.

Debt settlement involves attempting to get some portion of your debt forgiven (written off, actually) by the lender.

Debt-settlement customers simply stop paying their monthly credit card bills, and instead fund savings accounts; when the accounts reach a certain level, the debt-settlement company attempts to persuade the unpaid card-issuer to settle for a fraction of the balance owed.

What could go wrong? Hmmm.

For openers, there will be late payment charges because you stopped paying and those add up fast with the high-percentage interest you’re charged. Also, service fees charged by debt-settlement companies can hit 25% of the balance the company is attempting to settle. You could be on the hook for taxes on the forgiven balance, which the IRS will consider ordinary income. And if it’s not already, your credit score will look like it was run over by a bankruptcy bus.

Well-known debt settlement companies include National Debt Relief, Freedom Debt Relief, Pacific Debt Inc., and DMB Financial.

In short, understand the terms, methods, and ramifications of all before you make your choice.

Some companies maintain in-house debt counseling to assist consumers with consolidation, negotiation and management. Others refer clients to a network of companies, credit counselors and debt attorneys that offer solutions.

Also, go into this new phase of your financial life with a fresh, hard-edged point of view: No matter how tempting, you’re not going to use the breathing room provided by a consolidation loan for fresh splurging.

Instead, you’re going to take the opportunity to create long-term financial health: build an emergency fund, pay down your consolidated debt, stash savings for retirement, save for something fun. (Having someone to answer to is where going through the shed-your-debt experience with a nonprofit debt counseling company really pays off.)

Best Online Consolidation Loans

Eager to do it yourself, to capture your debts in a consolidation loan with a reasonable, predictable interest rate and one lower payment per month? Here are some recommendations to get you started.

Best in Class

  1. Marcus (Goldman Sachs) markets loans up to $40,000, doesn’t require sterling credit (660 qualifies) to apply, and boasts extremely competitive rates for better borrowers. Better still, its slogan — “Personal Loans With No Fees. Ever.” — commanded our admiration.
  2. Lending Club, the largest peer-to-peer lender, offers loans up to $35,000 to borrowers with credit scores of 600 and higher. Its interest rates generally are competitive and fixed, resulting in fixed monthly payments. Pay it off ahead of time? No problem; Lending Club assesses no prepayment penalties or fees. Downsides: Not available in Iowa, and when you pay by check (rather than electronic transfer, for instance), you’re dinged a $7 processing fee.
  3. Discover Personal Loans offers fixed rates (6.99%-24.99%) on loans up to $35,000 with no origination fees. Borrowers need credit scores 660 and up, but those who qualify can stretch their loan payoffs up to seven years.
  4. SoFi is another nontraditional lender. Besides offering loans up to $100,000 with fiercely competitive rates (6.99%-14.99%) — reflecting its high bar for entry: 680 credit scores and above — SoFi screens its applicants for level of education and career trajectory. Loan periods are from three to seven years. Also in SoFi’s favor: no origination, prepayment, or late fees.

Best for Troubled Credit

  1. connects applicants with a lender or lending partner within its network. A low credit score may complicate the matching process, but no one is turned away. Interest rates on loans as high as $35,000 range from 5.99%-35.99%, with repayment schedules up to 72 months.
  2. BadCreditLoans, around since 1998, has been helping consumers “who are struggling … in times like these.” The company not only connects borrowers to lenders, but also offers online advice about when to borrow, how to pick just the right loan and spend the proceeds wisely, and how to set a budget to pay off your loan quickly. BadCreditLoans partners lend up to $5,000 at rates ranging from 5.99%-35.99%.
  3. Upstart, launched in 2012 by former Google employees alarmed by what they considered predatory lending practices, is another peer-to-peer lender that considers where an applicant attended school, area of study, profession, and job history. Upstart loans go as high as $50,000 for up to five years at rates between 8.09%-35.99%. Be alert, however: Upstart charges an origination fee.

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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