How to qualify for a $15,000 debt consolidation loan

When it comes to money, simplicity is often a good thing. It makes the financial side of your life much easier to manage. And if you have about $15,000 in debt spread across several accounts, the simplest solution could be debt consolidation.

Give yourself a pat on the back, because not everybody knows how much debt they have. You do, and you’re ready to get rid of it. Let’s see if a debt consolidation loan is the solution and how to get one.

When is a $15,000 debt consolidation loan a good idea?

A loan could be the right move if it helps you save money and makes repayment more manageable.

One of the perks of debt consolidation is that you may be able to get a better deal on your debt. If you qualify for a loan with a lower interest rate than your current debt, then you might save on interest. Definitely look into debt consolidation if you have credit card debt. On average, loans have lower interest rates than credit cards, so this might be a big savings opportunity.

Debt consolidation also works well when you want to combine multiple payments into one. If you’d rather not juggle several debt payments, a debt consolidation loan is probably a good way to go.

You also need to check that you can qualify for the loan and afford the payments. You’ll generally have a solid chance of qualifying if your credit score is around 620 or higher. If your credit score is lower than that, getting approved for the rate you want could be harder. Make sure you can handle the monthly payments for the life of the loan, too. That will likely be three to five years, depending on how long of a loan you want.

How to qualify for a $15,000 debt consolidation loan

When you apply for a personal loan, the lender looks at your finances and runs a credit check. Here are the factors that usually matter most to lenders:

• Credit score: Your credit score is a rating of how likely you are to pay back money you borrow. It’s based on the information in your credit report, including your payment history on loans and credit cards. The higher your credit score, the better your approval odds and the terms of your loan could be. Even if your credit isn’t the best, you could find debt consolidation loans for bad credit.

• Income: Lenders check how much you make to see how much you can afford for a monthly payment. They also look at how consistent and stable your income is.

• Debt-to-income (DTI) ratio: Your DTI ratio is another factor lenders use to see if you can afford a loan. DTI ratio is your monthly debt payments divided by your income. If this is too high (normally about 43% or higher), it could be harder to qualify for a loan.

If you’re a homeowner, you might also consider a home equity loan or line of credit (HELOC) instead of a personal loan. Your home equity is collateral on this type of loan, which can help you get a lower interest rate.

A potential hiccup is that many lenders have minimums above $15,000 for home equity loans. To borrow $15,000, a personal loan is the more common choice. But there’s a workaround if you have any other big expenses on the horizon, like a kitchen remodel. You could get a home equity loan or HELOC to pay for that and consolidate your debt.

Whichever type of loan you choose, you can usually prequalify to see your rate without any impact on your credit score. Prequalification only involves a soft credit check, which doesn’t affect your credit.

Is a $15,000 consolidation loan affordable for you?

Monthly payments on a five-year, $15,000 loan will likely range from $311 to $406, depending on the APR (annual percentage rate). The table below has monthly payment amounts for different APRs over a five-year term.

The APR and the loan term are key factors in how debt consolidation loans work. They affect a loan’s monthly payment and total cost. If you get a shorter loan, you’ll need to make a larger monthly payment. But you’ll also pay less in total, because you won’t pay as much interest.

Debt consolidation loans often cost less per month than the required payments on your original debts would. So, you could come out ahead by consolidating your debt. Still, it’s important to see if the loan payment fits your monthly budget before you apply.

What if a loan isn’t right for you?

Not everyone can qualify for a loan or afford the monthly payment. If you find out that debt consolidation doesn’t work for you, here are three good alternatives to debt consolidation:

• Debt management plan (DMP): A payment plan between you and your creditors, set up by a credit counselor. You could get one monthly payment with a lower interest rate, without needing to get a new loan. DMPs generally only work if you can afford a high payment, though.

• Debt settlement: You or a debt relief company negotiate a settlement with your creditors. If you’re behind or struggling on your debt, you could resolve your debt for less than what you owe. The potential savings are one advantage of debt resolution vs. debt consolidation.

• Do-it-yourself (DIY) payoff: If you can afford your debt payments, you could get rid of your debt yourself over time.

There’s no quick or easy way to deal with big debts, but there’s always a way out. If you’re deciding between these alternatives, here’s a quick breakdown of when each one works best.

What’s next?

Now that you know more about debt consolidation, it’s the perfect time to take action. Start by going through the prequalification process to check potential loan terms with no credit impact. Armed with that information, go over your budget to see how much of a monthly payment you can afford.

Finally, to decide if debt consolidation is right for you, ask yourself if you can handle the loan or if you should look at other options. A debt consolidation loan could be a smart move. Since these loans last years, you just want to be sure about it before you apply.