A Guide to Debt Consolidation Loans
Think of a situation where you’ve to pay several loans with the same financier or different institutions. It can be such an overwhelming experience.
Carrying a heavy debt load can be overwhelming, which may hinder your ability to stay on top of your payments. That mainly happens when you’ve several loans and credit cards. If you want to relieve yourself of the debt, consider debt consolidation.
What’s debt consolidation? This is a form of debt financing where you take one loan to pay many others. Then you pay the new loan over time.
Two things are likely to happen when you consolidate your loans; it will lower your monthly repayments, but it could cause a temporary dip in your credit score on the flip side.
How does debt consolidation work?
When consolidating, you apply for a personal loan, a transfer of a credit card, or any other loan facility through your lender or a bank.
The lender may choose to pay off the debts directly, or you may have to get the cash and pay off yourself.
Through debt consolidation, you simplify your finances. You now are no longer have to make multiple payments each month.
Types of debt consolidation
There are two primary types of debt consolidation; secured and unsecured. Secured loans are backed by the borrower’s assets like a house, property, or car. The asset works as the collateral for the loan.
On the other hand, unsecured loans aren’t backed by any assets and, therefore, a bit of a challenge to obtain. They also tend to have a lower qualifying amount and higher interest rates.
Whichever the loan type, the interest rates are lower than the rates of credit cards, and in most of the consolidation loans, the rates are fixed so they don’t vary over the repayment period.
Here are some ways you can lump your debts together by consolidating them into a single repayment
Debt consolidation loans
Traditional lenders like banks, peer-to-peer lenders, and such offer debt consolidation loans as a relief to borrowers with difficulty managing the size and the number of their outstanding debts.
The process of consolidating your debt
Make a list of the different loans you have, tally up the amounts, interest rates, the lender, and the repayment period. List down your debt balances, interest rates, monthly payment, and how much longer you’re left on loan.
Listing the balances and details allows us to take some emotion out of it and look for facts.
Research on the options you have
Explore some viable financial institutions like a local bank, a credit union, or a reputable online consolidator. Check the rates, loan length, fees, monthly repayments, and the early or late repayment fees closely. Most importantly, compare with the total cost of the existing debt consolidation loans to see whether you’re getting relief or it’s just another activity.
Come up with a well-thought-out plan.
Before you get that consolidation loan facility, think about the much you can afford each month. That will help you decide the loan type and the repayment plan to adopt. Check your budget also for areas you can cut back on. That way, you free up your money, and you can stay on top of your repayments.
Loan consolidation is a perfect avenue to ease your loan repayment burden and maintain a good credit score. Explore the many options of consolidating your loan and settle on a financier who offers a friendly and less costly program.