Times are hard and there is no denying the fact that most households in the U.S are struggling. The slow economy coupled with global uncertainties has led to diminished economic opportunities. Most people have multiple loans they are trying to repay, which strains available incomes. If you have several debts, you appreciate how cumbersome it is when you are repaying them. In some cases, you may end up defaulting which will affect your credit score.
Debt Consolidation in Brief
If you are struggling to repay your multiple debts, it is time to think about debt consolidation. This is a financial solution that allows you to combine all your existing debts into a single loan. In essence, you will buy one big loan to repay all your smaller debts, which then makes it easier to manage your finances. Debt consolidation is a preferred solution by most financial advisors as it also reduces the interest rates you could be paying for the multiple loans.
Debt consolidation is an easy way to get out of a debt rut because you are able to manage your finances easily. Budgeting for your household becomes easier when you have one single loan repayment to worry about. At the same time, there is no risk of defaulting, which means your credit score is not at risk. If you already have a bad credit profile, you will start repairing it gradually through prompt repayment of the single loan.
If you qualify for a debt consolidation loan, you can repay all types of loans including credit card, student, tax, auto and any other loans you might have. This is a more secure option as opposed to using home equity, which transforms your home into collateral. If you are already in debt, don’t turn your unsecured loans into secured loans because you might end up losing the only assets you have.
Choosing the Right Debt Consolidation Loan
There are many debt consolidation companies online and choosing the right loan can be tricky if you don’t have the right information. Here are some considerations when you finally choose to consolidate your debt:
- Assess Your Finances
It is important to understand that debt consolidation is not a magic bullet for your finances. You will be applying for a new loan, which will have to repay over an agreed term as per the contract. Before applying for a debt consolidation loan, assess how much you can repay in a month without straining your finances. You should compare what you are paying today in terms of interest rates and compare what you will be repaying through the consolidated loan. If possible, talk to a financial advisor in order to work out how best to manage your income.
- Compare the Interest Rates
There are many debt consolidation loan companies and each will try to entice you with the best rates. While your goal is to save money, you need to consider other hidden charges that might end up negating the benefits of low interest rates. Compare different loans available and if you have a negative credit history, look for companies that offer debt consolidation loans for bad debts. The lower the rate the better for your finances, remember the idea is to enjoy lower interest rates for the single repayment you will be making.
- Check the Loan Terms Keenly
If you are struggling with debt, it is easy to get caught up in a scam, which will lead to more pain. Before signing along the dotted line, ask about the terms of repayment, penalties involved and if it is possible to transfer your loan. When you visit the debt consolidation company, take time to go through every item in the loan contract. This helps you understand the type of contract you are signing up for. By understanding the contract, you will manage your finances easily without ever falling behind in payments.
- Eligibility Criteria
Before applying for a loan, check whether you are eligible for the product that is being offered. Debt consolidation loans target those people who are struggling to repay multiple loans. While some companies will offer only secured loans, there are many more which provide loans for people with bad credit. This means you can start repairing your bad credit profile once you start repaying the single loan.
- Is it a new Loan?
There is a big difference between debt consolidation and debt management. Some company will advertise debt consolidation yet they combine your monthly repayments instead of giving a fully new loan. When choosing the loan provider make sure you confirm that all your other debts will be repaid. This helps you understand how much you will be repaying monthly. You will also know how much debt you have once you apply for the new loan. It is important to confirm whether all your debt will be paid immediately or over a period of time because this directly affects your credit score.
- Confirm Licensing of your Loan Provider
The internet is rife with debt consolidation scams which promise loans. There are many complaints by borrowers who have been lured into more debt by debt relief companies that are not registered. Confirm your loan provider is registered and also visit your local BBB to check for any complaints. A reliable loan provider should have an A+ rating from both the BBB and past clients. You should also read debt consolidation reviews to find out what others think about the company.
- Check the Alternatives
It is important to learn more about debt consolidation options in the market. These include home equity lines of credit (HELOCs), credit card loans and retirement accounts loans. However, your financial advisor will tell you that all these options come with risks that far outweigh any benefits they offer.
Debt consolidation is a wise move if you are deep in debt. It helps get your finances back on track and if your credit score is poor, this move helps to start repairing it. The company you choose largely determines the quality of services you get, which is the reason you must read top debt consolidation reviews before buying a loan product.