How Much Debt Do You Need to Consolidate? [2024] (2024)

FAQs

Should I consolidate my student loans before April 2024? ›

If you want to consolidate your loan(s) in order to get the benefit of the adjustment, we encourage you to submit a loan consolidation application by April 30, 2024.

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 credit card with a 0% interest period or low-interest debt consolidation loan.

Minimum loan amount is $1,000 and loan terms range from 12 to 84 months (up to 60 months for non-customers).

A debt consolidation loan is a type of unsecured personal loan with fixed interest rates and repayment terms (which usually range from 12 to 60-plus months). Personal loans provide a lump sum of money, which, in the case of debt consolidation, you'll use to pay off your existing debt.

If you're a longtime borrower who has been in repayment for at least 20 or 25 years, you could get automatic loan forgiveness by September 2024. This is the result of a one-time program called the IDR account adjustment.

You can afford to repay the loan: A debt consolidation loan will only benefit you if you can afford to repay it. You'll risk getting into a deeper debt cycle if you're not 100 percent sure you'll be able to afford the monthly payment down the road.

Key takeaways. Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.

If you do it right, debt consolidation might slightly decrease your score temporarily. The drop will come from a hard inquiry that appears on your credit reports every time you apply for credit. But, according to Experian, the decrease is normally less than 5 points and your score should rebound within a few months.

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

Who is the best debt consolidation company? ›

Every lender sets its own guidelines when it comes to minimum credit score requirements for debt consolidation loans. However, it's likely lenders will require a minimum score between 580 and 680.

Generally, you're eligible to consolidate after you graduate, leave school, or drop below half-time enrollment. The loans you consolidate must be in repayment or in a grace period.

Important note: As part of the Fresh Start Program, borrowers with eligible defaulted loans are receiving certain relief measures, including tax refunds (and child tax credits) not being withheld. This relief will continue through at least September 2024.

While consolidating your loans may slightly increase your interest rate, it will lock you into a fixed interest rate, so your new payment, if based on a standard repayment plan, won't change over time.

The path to student loan forgiveness has been tumultuous at best, and some borrowers eligible for relief may have missed a key deadline to consolidate their student loans. Borrowers had until April 30, 2024, to consolidate their federal student loans into one Direct Loan to help maximize their student debt relief.