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Debt Consolidation for Bad Credit | Best Financial Advice - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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You know all the tired, traditional debt payoff
strategies but they all mean you鈥檙e still
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paying thousands in interest over years of
payments.
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By the end of this video, you鈥檒l know how
to use a debt consolidation loan to save money
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and cut years from your payments.
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In fact, I used this same process to save
over $3,400 and pay off $15,000 in debt after
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destroying my credit in 2009.
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Joseph Hogue here with the Let鈥檚 Talk Money
YouTube channel.
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I want to send a special shout out to everyone
in the community, thank you for taking a part
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of your day to be here.
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If you鈥檙e not part of the community yet,
just click that little red subscribe button.
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Today鈥檚 video is the fifth in our debt payoff
series, an entire series on ditching your
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debt from creating those goals that are going
to motivate you to some tricks I鈥檝e learned
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to pay off debt.
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Think of it like a TV series, at the end of
this season, you will have all the tools you
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need to finally get out from under that crushing
debt.
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So make sure you subscribe so you don鈥檛
miss any of the episodes.
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I鈥檒l also be putting these videos in a special
list in the Playlists section of the channel
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and link to it in the video description below
so you can watch the series in order.
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I love the two debt payoff strategies we saw
in the previous video, two ways to pay off
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your debt that save thousands in interest
and motivate you every step of the way.
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But there鈥檚 another way to pay off your
debt that I wanted to keep for its own video.
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I used it to get my debt under control and
save $3,400 in 2009.
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It helped increase my credit score and it
will work for you but it鈥檚 sooo controversial.
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In fact, it鈥檚 probably the most controversial
thing we鈥檒l talk about in our debt payoff
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series.
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I鈥檓 talking about debt consolidation, taking
out one large loan to pay off your high-interest
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credit cards and other debt.
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The average American has $15,000 in credit
card debt at a rate of 18% - that means they鈥檙e
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paying about $225 a month in interest alone.
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Not only that but they also have $37,000 in
other debt not including a mortgage.
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That鈥檚 student loans, car loans and other
debt that cost another $300 a month in interest
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- that鈥檚 over $500 a month lost just on
the interest or about $6,000 a year down the
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drain.
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After that, how much is left to actually pay
down the debt?
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Zero, that鈥檚 how much.
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I鈥檝e been there.
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In 2009, I was bankrupt and owed tens of thousands
in credit card debt and other loans.
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I was barely keeping up with the interest
payments.
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I was able to get a personal loan for $15,000
to pay off credit cards and a car loan.
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The interest rate of 13% on the consolidation
loan was well under the 18% I was paying on
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the debt so I was immediately saving $40 a
month on payments.
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Not only did paying just one bill a month
instead of three make it easier to manage
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but I still made the same monthly payment
and ended up saving $3,453 in interest and
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paying the debt off almost a year early.
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But debt consolidation is controversial, I
get it.
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Consolidation is like giving methadone to
a heroin addict.
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You鈥檙e giving them one drug to get them
off another and while methadone is much less
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addictive and dangerous, there are risks.
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It鈥檚 the same with debt consolidation.
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You鈥檙e getting a loan to pay off other debts.
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You鈥檙e going to save money on interest and
make your finances more manageable but there
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are also risks.
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If you use the money from the personal loan
just to go shopping instead of paying off
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your loans, or even worse yet, you pay off
your credit cards but then max them out again,
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now you鈥檝e got twice as much debt.
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A consolidation loan is like getting a pet
alligator to eat the pet snake that got too
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big and is roaming the house.
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Get the alligator, let it do its job鈥ut
then get rid of it fast.
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So that was a really long lead in but I just
want to make sure you know the risks and how
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to use debt consolidation without falling
deeper into debt.
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If you still want to take control of your
debt, to save money and pay it off faster,
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I鈥檓 going to walk you through how to get
the best rate possible on a personal loan.
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If you decide consolidation isn鈥檛 for you,
just skip to the next video in our series
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and I鈥檒l show you how to boost your credit
score so you never have to worry about rates
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again
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So how do you get a debt consolidation loan?
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I鈥檓 going to walk through the process on
one of the personal loan sites I鈥檝e used.
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An important thing to remember is to apply
for a loan on at least a few sites to see
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which offers the best rate.
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The sites do a soft-pull of your credit so
it won鈥檛 affect your score.
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I鈥檝e got a comparison list of consolidation
loan sites that I鈥檒l link to in the video
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description below.
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Click through and check out a few of the sites
because you really do want to shop around
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to get the best deal possible.
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Your first step is just to list out your debts,
how much you owe and the interest rate on
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each.
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Make sure you get every single one on the
list.
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This includes credit cards, car loans, personal
loans, payday loans, everything plus the interest
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rate.
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This is going to be important because you
might not want to consolidate all your debt.
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Usually your mortgage is at a pretty low rate
so you won鈥檛 want to use another loan to
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pay it off.
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The idea here is that you鈥檙e going to be
paying off high-rate debt with a lower-rate
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loan.
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Next, click through to one of the loan sites
in the comparison list on the blog.
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I鈥檓 going to use personalloans.com as a
comparison because I鈥檝e used them twice
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for loans.
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I used them first for a consolidation loan
and then again for a loan to remodel our home.
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Depending on your credit score, you鈥檒l qualify
on some loan sites but not others so check
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out the list and shop around a little.
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Here we are on the personal loans website.
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I鈥檒l go through the process but it鈥檚 really
straight forward and takes less than five
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minutes.
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The first thing you鈥檒l see is this slider
for how much you want to borrow and the get
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started button.
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The amount doesn鈥檛 really matter right now,
just put in your email and click to get started.
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The next screen is some basic information
like your name and birth date to make sure
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you鈥檙e at least 18 years old.
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After this first step, you鈥檒l be asked for
contact information and verification to protect
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your identity.
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You鈥檒l put in your address, employment information,
a driver鈥檚 license and your social security
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number.
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Again, this is so the site can do a soft-pull
of your credit.
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It鈥檚 like what happens when you get pre-approved
for a loan.
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It allows them to set an interest rate but
doesn鈥檛 hurt your credit score like a hard
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pull.
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Approval is instant and the website is going
to come back with a quote for an interest
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rate.
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It will also show you the exact amount you鈥檒l
pay each month.
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No hidden fees here and there鈥檚 no cost
to getting a loan, that鈥檚 why I like this
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site versus some others.
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Now if the rate on your loan is less than
what you鈥檙e paying on some of your debts,
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then you鈥檙e going to be saving money.
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If you get a quote of 14% on your consolidation
loan and you have three debts that charge
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interest of between 15% to 24% then paying
those off will lower your monthly payment
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and save money.
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If you agree to the terms of the consolidation
loan, you鈥檒l link up your bank account and
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can usually receive your loan within a few
days.
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Some people might be asked to email copies
of their paycheck or to verify employment
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but it鈥檚 pretty rare.
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Your monthly payment on the new loan is on
a fixed rate and the same every month, one
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of the great things about a personal loan
versus credit cards.
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You鈥檒l know exactly how much you owe every
month and you鈥檒l be on your way to paying
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the debt off.
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The payment will come directly out of your
bank account each month and on the same day.
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One of the hidden benefits of debt consolidation
is that it goes on your credit report as a
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non-revolving debt.
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This means you have a payoff date and a fixed
payment and is different from revolving debt
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like credit cards with payments that go up
and down.
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The people that make your credit score hate
that revolving credit card debt and it鈥檚
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one of the things that really hurts your FICO
score.
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I鈥檝e seen people get a 30 or 40 point bump
in their credit score by paying off their
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cards with a personal loan.
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We鈥檙e going to be talking a lot about credit
scores in our next few videos in the debt
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series.
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I鈥檓 going to show you exactly how to check
your credit, how to boost your score and give
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you some hacks you can use to get the best
rates on any loan.
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Make sure you click on that subscribe button
so you don鈥檛 miss the rest of the videos.
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Click on the link just below this video to
watch the entire debt payoff plan and get
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out from under your debt.
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