Credit union debt consolidation loans: pros and cons and 3 best providers
When you’re drowning in debt, it can be the only thing on your mind.
Overdue payment notices, bank letters, and persistent phone calls from creditors can break even the strongest spirit.
And it can be confusing.
Numerous debt obligations, all due at different times of the month with varying interest rates, create persistent stress in your life. To make matters worse, it might seem as if a resolution is nowhere in sight.
But fortunately, a credit union debt consolidation loan can provide much-needed relief for many Americans. But how can another loan improve your financial health and help remove this overwhelming burden?
Read on to learn how a debt consolidation loan can relieve you of your financial obligations—and when it’s best to approach credit unions for one.
What is a debt consolidation loan?
A debt consolidation loan is a financial product offered by credit unions and other financial institutions. It combines (“consolidates”) multiple existing debts into a clean, manageable single monthly payment.
For example, instead of paying a credit card balance, medical bill, and personal loan each month, you’d pay just one amount representing all three debts. With one loan, debt management is simplified.
Moreover, the consolidation loan often carries a lower interest rate than the existing debts.
Think of a debt consolidation loan as a fresh start. It’s like decluttering your house; but in this case you’re cleaning up your finances.
- Consolidation merges multiple loans, leaving the borrower with a single balance and fixed monthly payment.
- Proceeds of the new loan are used to disperse (clear) the existing debts.
- The new loan typically includes a lower interest rate than the former high-interest debts. This can result in lower monthly payments or allow the borrower to pay off the debt faster.
- The primary benefit of consolidation is that it provides the borrower with a clearly defined and straightforward path back to a debt-free life.
Who should consider a credit union debt consolidation loan?
Debt consolidation loans may be suitable for the following individuals:
- Those struggling to manage multiple loans.
- Individuals who are overwhelmed by numerous monthly payments and high rates.
- Those with numerous high-interest monthly payments (i.e., multiple credit card balances).
- Anyone who wants to lower their overall interest rate.
Pros and cons of debt consolidation loans from credit unions vs. other providers
If other financial institutions provide the same product, what’s the advantage of using a credit union debt consolidation loan?
|As not-for-profits, credit unions sometimes offer lower interest rates than banks and other providers.
|Credit unions typically have fewer products and services compared to banks.
|Member-owned credit unions are often praised for their exceptional customer service.
|Credit unions are less common, so branch locations may be further away than major banks.
|Some credit unions will provide borrowers with free financial education resources and debt counseling.
|You must be a member to use their products. Sometimes restrictions (like employment or location) may preclude you from becoming a member.
|Credit unions are often more willing to work with people with bad credit.
Top three credit unions that offer debt consolidation loans
Each recommendation below is a U.S.-based credit union that offers debt consolidation loans. Providers were assessed based on the loan details, customer experience, application process, and other features.
PenFed Credit Union: It’s not quite the oldest credit union on our list, but it’s by no means new. PenFed has been serving its members since 1935. Today, it boasts over 2.5 million of them with $31 billion in assets.
Membership was once reserved only for those with ties to the U.S. government or military, but now it’s open to all American citizens and U.S. residents.
- APR: 7.74% - 17.99
- Terms: Up to 60 months
- Loan amounts: Up to $50,000
- Customer reviews: 4.5 out of 5 on Trustpilot (based on 1,408 reviews)
- Unique benefits: PenFed members gain access to their Financial Hardship Center, which offers borrowers financial assistance.
- Suitable for: Borrowers who hate fees. With a debt consolidation loan from PenFed Credit Union, you’ll experience no early payoff penalty, no origination fee, and no hidden fees.
First Tech Credit Union: First Tech Credit Union specializes in serving affiliated technology companies and their employees. It boasts 33 branches, mainly in California, Washington, and Oregon.
Members enjoy access to numerous financial products, including debt consolidation loans, mortgages, personal insurance, credit cards, auto loans, and more.
- APR: Starting at 7.99%
- Terms: Up to 60 months
- Loan amounts: $500 to $50,000
- Customer reviews: 4.1 out of 5 on Trustpilot (based on 3,149 reviews)
- Unique benefits: Members receive various discounts, like $350 cash back for using direct deposit
- Suitable for: Borrowers seeking a painless debt consolidation loan application process. Prospective borrowers can obtain a personalized interest rate on their website in less than 30 seconds.
Navy Federal Credit Union: Navy Federal’s history goes back to 1933. While membership requires ties to the armed forces, those that are eligible will enjoy competitive fees, flexible repayment terms, and access to an extensive network of 350 branches.
- APR: 7.99% - 18.00%
- Terms: Up to 60 months
- Loan amounts: $250 to $50,000
- Customer reviews: 4.6 out of 5 on Trustpilot (based on 20,330 reviews)
- Unique benefits: Navy Federal members are eligible for a 0.25% interest rate reduction on student loans if they sign up for automatic payments
- Suitable for: Active and retired members of the military and their families
The bottom line, it’s all about math. If you can reduce your debt burden through debt consolidation, it’s probably a good idea to do so.
More than anything, though, credit union debt consolidation loans can provide you peace of mind.
The benefits and stress relief that comes with going from multiple loans to a single, often lower, monthly payment with a clear finish line to eliminating debt cannot be overstated.