It’s about combining all of your outstanding loan and credit card debt into a single account.
If you struggle to repay your debt, you must take action immediately to avoid more serious trouble in the future. Debt consolidation is one of the best solutions to the problem. This will enable you to make just one monthly payment which is smaller, to save money and to avoid default. In order to be highly effective, the debt consolidation loan must have lower interest rate than the average interest rate on your existing loans and credit cards.
Debt Consolidation Tailored for You
There are different debt consolidation options to pick from so you will certainly find the solution which suits your needs best. One of the most effective strategies involves the use of a 0% interest credit card. When you take out such a card, you need to transfer all of your outstanding credit card balances to it so as to save on interest. Your goal will be to repay the entire outstanding amount before the 0% interest period is over.
The other main debt consolidation option involves the use of a home equity loan. You can transfer the outstanding balances on all of your current unsecured loans to your home loan or to take out a new home equity loan and use it for paying off these balances. Either way, the interest rate which you will pay will be lower since the loan is secured. You will pay less than you used to every month so you will have room to breathe. The main drawback of this option is that if you default on the loan, you may lose your home.
How to Consolidate Debt
If you find it difficult to repay your existing debt and you keep getting into more debt, you should stop this vicious cycle by seeking expert help. You should work with a debt counsellor or a financial advisor specialising in debt management to resolve the situation. The professional will analyse your current financial standing and come up with a strategy for debt repayment which corresponds to your income and spending. You will have a clear idea about your loan payment obligations and monthly budget.
You should apply for a debt consolidation loan as soon as you find one which meets your needs and requirements. The lender will run a credit check so you must ensure that your credit record is clean. It is essential for you to have been paying all of your bills, loans and credit cards promptly over the past months. The lender will determine your ability to repay the loan based on your income and expenditure. You should make the application only after ensuring that the loan matches your needs and ability to repay it perfectly. This is important since making several applications will result in credit score damage and lower your chances of getting out of debt.
If you have bad credit, you should find out how you can obtain a loan for people with bad credit.
Step 1: Eligibility Assessment
You have to have sufficient disposable income in order to qualify for a debt consolidation loan. The income which you have left after covering all of your expenses must be higher than the monthly loan instalment. The larger the difference is the better. You have to have clean credit record in order to get approved. If you have bad credit, your application will most certainly be rejected. Still, if you have just a few not particularly significant delinquencies, some more flexible lenders may still approve you. For example, you may be able to qualify if you have no more than two late payments.
Step 2: Avoiding Mistakes
When you use a debt consolidation loan, you will have to pay closing costs. These are typically a percentage of the total loan amount. You should pay these costs at the time of obtaining a loan. Going for any other option will be a costly mistake. Some lenders offer to wrap these costs to the loan amount or charge a higher interest in order to eliminate them. In any case, you will have to pay much more than the initial amount in the end.
Taking out a loan with terms and conditions which are not favourable for you is another major mistake to avoid. Your financial situation will not improve if you find it difficult to repay the new loan as well. The best way to avoid this mistake is to negotiate the terms and conditions of the loan. Most lenders are willing to show considerable flexibility, especially when they do not have many clients. You should focus on securing lower interest rate, lower monthly instalments and easier repayment structure.
Step 3: Getting Support
You need effective preparation in order to apply for a debt consolidation loan. You have to calculate the total size of your debt, how much money you need to take out and how you will manage the repayment of the new loan. If you cannot do the calculations and the analysis, you should use the service of a debt counsellor who will assist you with everything which you need.
The debt management specialist will suggest the most effective strategy for debt consolidation in your particular case. The expert will help you with preparing a plan for the repayment of the new loan so that you can stay out of trouble. You will get professional help with finding and obtaining the most suitable debt consolidation loan for you.