Debt consolidation could be your go-to if you have multiple loans that are becoming hard to manage. When consolidating your debts, you’ll need to take a sizable loan that you will then use to pay multiple creditors.
This is basically paying your debts with another debt but ideally, debt consolidation should help you pay lower interest and have your monthly payment lowered. The single loan you’ll be applying for could either be enough or partially adequate to pay off the rest of your loans, and that could actually help you avoid getting negative reports.
While debt consolidation is a very direct process, there are still things that you should know about before getting this done. Consolidating your debts blindly can have you end up paying more interest than not doing this at all.
In this post, we’ll let you know of the ways on how you can carry out a debt consolidation and points to remember before you opt to push through with this process.
Where to Get a Loan for Debt Consolidation
Your bank can allow you to take a loan to consolidate your debts, but a good option would also be through debt relief companies or actual debt consolidation companies.
Debt consolidation companies will base their offer on your credit score. It’s ideal to have at least 600 credit score if this is what you want. This type of lending company can still decline your application, so to avoid wasting time, check on your credit score already.
When it comes to checking your credit score, it’s best to obtain a copy from each of the three credit reporting bureaus in the country.
If you plan on doing this with your bank, you’ll most likely only have this option through a home equity loan. However, this could be very risky as this is a way to carry out debt consolidation through secured loans.
Debt Consolidation Through Secured Loans
Speaking of carrying out debt consolidation through a secured loan, this just really means that you’re putting your assets as collateral. Aside from a home equity loan, some banks would also allow you to leverage your assets like your car or even your 401K.
If you carry out a loan using your assets or any of those as your collateral, the risk is just higher. If you fail to pay this loan, you’ll basically lose everything. However, because of your assets, you’ll most likely score a better loan deal.
How About Doing This with Unsecured Loans?
Through this, you won’t need any collateral to get a loan. However, this could only be an option if you have an outstanding credit score. People with bad credit loans will most likely not be offered to carry out debt consolidation this way.
Aside from how this is purely credit score-based, the interest rate you’ll need to pay would be higher than secured loans. And so in theory, this may not even do you that much good.
Other Factors to Consider and Keep in Mind When Seeking Debt Consolidation Loans
Some debt relief companies would charge fees on top of what you’re already paying for the loan monthly. So if your only option is to take out a loan with such companies, it’s best to look around first and compare the offers that you get.
Interestingly, some debt consolidation companies don’t just approve your loan. If you are dealing with bad credit loans, they would probably also offer credit counseling or budget planning sessions. This varies widely so it’s best to ask about it if you’re already looking around.
It’s best to find a consolidation center that could actually help you out of your debt instead of just aiming to make a profit out of it. You can always consult a financial advisor or credit counselor before going anywhere else. It’s safe to assume that these experts could refer you to a good place.
Final Thoughts on Debt Consolidation
Going through this process or program should only be considered if you have multiple loans. It’s even better if these loans no longer have huge balances. Know your loans well. Know the probability of having to pay more interest because doing this may prolong the time you’re in debt.
If you find debt consolidation as something that would really help your financial crisis, take advantage of how convenient it could be and make sure that you do this to improve your credit, rather than just finish your existing loans.
Most importantly, do your research about the debt relief companies you’d like to get involved with. Read reviews online and find people who have something to share about the company. What you wouldn’t want to happen is to find that the company you trusted to help you out is sending late payments to your previous creditors.
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