Got debt? Consider a Credit Union Consolidation Loan
For people looking to get real about their personal debt, there’s a lesser-known option that’s not offered by banks — but could be a pathway for those who face up to their debt problem and own it. It’s a debt consolidation loan, and it’s offered through a credit union. In a nutshell: • You trade in your bills from, say, credit cards, finance companies, payday-loan operations and major-appliance purchases. • Those bills are paid off and the accounts are closed. • You end up with a single monthly payment — on the debt loan — and you get to keep one major credit card, which is also paid off. HOW DOES IT WORK? Karen Hagen, loan manager at Southwest Louisiana Credit Union, has been helping people for over three decades with her banking and credit union experience. “We’re going to work with you,” said Hagen. You bring your pay stubs to confirm your income and your bills to illustrate your debts. (Car notes and home mortgages are not included in that total.) A loan officer will then pull your credit history. “You’ll generally know within 24 hours,” she said. “Sometimes the same day, if you come with all the information we need.” Creditors are paid off directly by the credit union — so there’s no temptation for you to use the money for some other reason and get yourself even deeper in debt. You end up with one payment to the credit union and one major credit card that you keep — usually the one you’ve had the longest — and the other accounts are closed. The single debt-loan payment is less than what you were paying on an assortment of debts — because you’re getting a lower interest rate on the debt loan. “It’s going to help you in the long run, too,” Hagen said. “In about a year — and sometimes in as little as six to nine months — your credit score stands to go higher.” A higher score means a better rate later on when you want to finance your next car or apply for a mortgage. “Because you’ve managed your debt, you’re going to get a better rate,” Hagen said. Hagan said a consolidated loan is an unsecured loan — no collateral. “That means the credit union is willing to take on a greater risk. Your banks won’t do debt consolidation loans or unsecured loans.”
The dollar amount of a debt consolidation loan can be for about two to four times your monthly income, depending on several factors:
range for a debt consolidation loan, which can be obtained as long as your DYI doesn’t exceed 45 percent.
The length of your credit union membership.
Chad Miller, chief operations officer, said consolidation loans are just one way credit unions are different from banks. “Our members are our owners,” Miller said. “Our profits are returned in the form of lower interest rates — and free services.”
The specific amount of debt. That’s what limits the loan size, period, unless you’re getting a debt consolidation loan that includes you getting some cash in your pocket in addition to paying off your debt. Your credit score. A three-digit FICO score in the 500 range is considered “poor.” The typical American’s score reaches 700. Hagen said keeping a top score is a universal challenge. “One missed credit card payment, even one late payment, can represent 35 percent of your credit score,” she said. Your debt to income ratio. Your DTI ratio is calculated by taking your debt (let’s say it cost you $1,500 a month) and dividing it by your monthly income (let’s say $4,500). Under those sample figures, your DTI would be 33 percent. That’s within
Butch Ferdinandsen
CFP®, CLU®, ChFC®, CRPS, CRPC Investment Advisor Representative Securities and investment advisory services offered through Woodbury Financial Services, Inc. (WFS), member FINRA/SIPC. WFS is separately owned and other entities and/or marketing names, products or services referenced here are independent of WFS.
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