Options for When You are Overwhelmed with Personal Debt
It is not uncommon to find yourself battling a mountain of personal debt in this country. The average amount of household debt for American families in 2016 is $132,529. When you are facing that amount of debt, you can easily feel like there is nowhere to turn for relief. However, the worst thing you can do in this situation is to sit by and allow penalties to add up because you will only dig yourself into a deeper hole.
One of the most readily available options for dealing with staggering personal debt is to consolidate all of it into a personal loan. If you can get yourself approved for a personal loan from a bank, then you will be in good shape to start paying off the balance and moving to a more sustainable budget. One of the barriers to getting approved for a personal bank loan is having a very low credit score.
When you make a personal loan as a debt consolidation loan, it is best if you acquire an unsecured loan. This means that the loan does not have a collateral. Instead, the bank is making a loan for you based on your bank relations with them, as well as a good credit rating and history. One of the few banks which offer unsecured personal loans is Wells Fargo.
Getting a Personal Loan from Wells Fargo
A personal loan is not for everyone. As a bank, Wells Fargo is under no obligation to give loans to anyone who asks. They need to make sure that you are not a risk. You should consider a Wells Fargo personal loan if you have the following qualifications:
— There is a Wells Fargo branch near your home – If you have an existing Wells Fargo account, you can apply online, otherwise, you will have to apply in person at the bank. Wells Fargo has over 8,900 branches.
— You have a good to excellent credit score – According to the bank, more than half of Wells Fargo unsecured personal loans go to persons with a credit score between 660 and 749.
— You need a large loan of up to $100,000 – This is an amount which few online lenders offer.
— You have a checking account with Wells Fargo (including the regular personal checking account or the Portfolio by Wells Fargo). You get a small discount on the interest rate for automatic payments. If you have a savings account or a certificate of deposit account, you can use these as collateral for a personal loan.
— You want to properly manage and pay off your debt in due time. Wells Fargo allows borrowers an option to directly pay off creditors. Borrowers also have free access to their own FICO credit scores.
Typically, banks have their own criteria for approving a loan, including having a credit history of several years, as well as a debt-to-income ratio (DTR). For Wells Fargo, it is generally 40% or below. The DTR is computed by adding up all the loan payments made per month, and dividing it by the monthly income before taxes and other deductions. It demonstrates a balance between debt and income, and can determine a person’s capacity to pay. Banks have a threshold of around 43% for mortgage loans, and anything above that and the debtor may not be able to manage his loans. At 40% DTR, the borrower can still increase his debts up to the 43% DTR threshold.
Personal Loan Options from Wells Fargo
When you take out a personal loan from Wells Fargo, you will be offered a fixed interest rate. Variable rate options are currently not available from this bank. This means that you can expect to have the same minimum monthly payment throughout the entirety of your loan. You may be able to get an unsecured personal loan through Wells Fargo if you have a good enough credit score which means a debt consolidation loan bad credit application may not get approved. The length of history with Wells Fargo is also another major consideration for the bank to allow your loan. However, keep in mind, that if your total debt obligation is more than $50,000, you may want to consider a secured loan as a way to increase your borrowing power. You can expect to be offered a payment plan for one to five years. All in all this could be the best bank for debt consolidation if you qualify.
A personal loan from Wells Fargo has an APR ranging from 6.99% to 23.99%. The unsecured loan amount can be as low as $3,000 and up to $100,000. This is a fixed term loan payable from 1 to 5 years depending on the loan amount. The loan is typically released on the same day as it was applied for. Borrowers with a Wells Fargo regular checking account have a rate discount of 0.25% on their personal loans, while Wells Fargo Portfolio account holders get a rate discount of 0.5%.
Unsecured personal loans do not have an origination fee. You can finish off paying your loan before the end of term without a prepayment fee. Late monthly payments have a flat $39 fee. Check payments which were returned are assessed $39 returned payment fee. The late payment and returned payment fees are larger than what you would be charged at other banks.
Savings account holders and those with a CD account can use their account as collateral for a secured personal loan. The secured personal loan will have a lower interest rate than the unsecured loan. The secured personal loan will be for an amount lower than the savings account balance, or the CD account amount. For example, if you have $16,000 on your savings account, you will be allowed a loan of $15,000. In addition, you cannot use the collateral savings or CD account for the duration of the loan. You can only withdraw from these accounts once you have repaid the personal loan. There is also a $75 origination fee with the secured loan, this is payable in cash during the loan processing or added to the loan amount. A qualified account holder can borrow up to $250,000 secured personal loan, depending on their location and what the type of collateral.
The Process of Applying for a Personal Loan from Wells Fargo
If you are not currently a Wells Fargo customer, then you are required to come to a branch in order to fill out an application. If you are an existing customer, then you may be able to apply for a personal loan online using your personal information. The upside of using a large institution, such as Wells Fargo, for your loan is that there is an abundance of local branch locations for you to choose from. You should be ready to provide current identification as well as a recent pay stub.
There is not a long waiting period for approval of a personal loan from Wells Fargo. If you are taking out an unsecured loan, then you will not have to worry about paying an origination fee for the loan. Also, you can feel free to pay off the personal loan sooner than your minimum payment schedule without any fees or penalties. Be careful of the $39 late charge that Wells Fargo will tack on if you miss any required monthly payments. This fee tends to be much higher than what other lenders will charge.
The use of a personal loan for debt consolidation is not a simple matter. The lender usually has other things to consider before resorting to debt consolidation. The main reason for consolidating debt is if there are one or two debts which have a high interest rate. For some, they would rather pay off their debts immediately rather than pay over an extended period with the corresponding interest charges.
Having unpaid debts is not a bad thing, overall. This is especially true if you have a small business. Loans and debts are a part of doing business. There are some businesses which make money off of the length of time afforded them to repay their debts. This includes terms like 30-, 60- or even 90-day repayment of goods or inventory purchased. The business can use the money as part of the revolving funds or for operations purposes since the amount is not yet due. This follows the dictum of “collect early, pay late” which is implicit in running a business.
This is also a reason why some small businesses would rather have money in the bank, rather than withdraw the money to pay off the debt. Applying for a secured loan with the bank deposits as collateral is beneficial on a lot of levels. First, the money in the bank is secure, it is not going to be withdrawn, and this results in good relations with the bank. For another, the collateral allows the borrower to have better interest rates on the loan. For Wells Fargo, the discounted rate for regular checking and Portfolio checking accounts can be considered substantial if you are running a business. The money in the bank used as a collateral also appears in the accounting books as money in the bank. This helps bolster the statement of assets and liabilities.
However, an individual who does not have their own business might decide that it is better to pay off the debt with the money in the bank. As a result, he will not have to pay the high interest rates of the outstanding debt, as well as the loan for debt consolidation.
Small business owners would much rather have multiple loans or debts rather than consolidate them. This makes sense if the business owner is able to pay the loans’ monthly dues. The nature of loans and their source financial institutions allow them to lend more money to borrowers with a proven capacity to pay. A borrower who is able to keep up payments is considered as a better customer than an account holder who does not take out loans.
When consolidating debts, you have to consider if the overall interest payment would be better or detrimental to your capacity to pay. It is not necessary to consolidate debt if the resulting single debt will result in a higher monthly payment due to higher interest payments. You can opt to consolidate only those loans or debts which have a high interest. So get a credit card calculator payoff to see if all this makes sense.
Considering that interest rates are dependent on the prevailing rates, you can negotiate with banks for a lower interest rate when the bank rates decrease. However, to do this you should be aware of the market forces which dictate the market rates. You should also try to keep updated about your bank’s loan interest rates. If a competing bank has a lower interest rate, that is a good reason to transfer loans, combined with the use of debt consolidation strategy. Use a credit card debt consolidation calculator to figure out which option to go with.
Debt consolidation can be done for any number of reasons. However, the best reason for it is if there is the opportunity to take advantage of prevailing low interest rates, or if there is a loan facility which will allow you to pay your loans with more agreeable terms, either a lower interest rate or a longer repayment period.
When you opt for a lower interest rate, this may result in a shorter repayment period and higher monthly payments. This will result in lower total interest payments. A longer payment period will result in lower monthly fees, but the total interest payment will be higher.
If you have your own small business or home business, the “cost of money” is a major consideration, along with questions of liquidity, and projected cash flow. Liquidity is when you have enough cash or money in the bank which you can use for your daily business expenses or for company operations. You want to have enough money for petty cash or for operations without resorting to a bank line of credit. In the same manner, liquidity is also related to cash flow. Money comes in due to customer payments, while it flows out due to payment of expenses.
A regular person working for a company may not have the luxury of thinking in this manner, except in the way he budgets his income. A certain portion goes to regular monthly expenses, some amount goes to mortgage and loan repayments, and so on. A debt consolidation may be better for him because he has one less thing to worry about, as long as his income and his DTR is within acceptable limits. If his DTR exceeds the threshold of 43%, he may not be able to pay off his debts, and instead add to the debt because of his inability to pay.
Financial Advisor, MoneyBeagle
Dan is one of the top financial experts when it comes to debt consolidation. With more than 20 years of experience helping people tackle debt, he has a unique insight when it comes to solving debt-related problems.
Dan got his start when he went to work for a bank after getting his Business Degree. He worked his way up and became a loan officer. This position gave him unique insights into the ways that financial products work and how people can utilize different financial products to improve their lives. He’s seen hundreds of success stories and just as many failures – so he knows what steps are most likely to help his readers.
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