How Do I Get a Good Debt Consolidation Loan?
If you are like many other consumers, you carry high balances on your credit cards, personal loans and other types of debts. Perhaps you have reasonable balances, but you have so many accounts that you struggle to keep up with the payments. Debt consolidation is a strategic way to improve your financial management and to potentially pay your debts off at a faster pace.
Debt consolidation essentially is a way to refinance a few or even all of your debts into a new account. Typically, this account has much more advantageous terms, such as a lower interest rate or a fixed term rather than a revolving term. Many people who have successfully consolidated their debts have been able to lower their monthly debt payments, reduce interest charges, pay debt off faster and achieve other significant benefits. If you have never consolidated personal debts before, you may understandably feel intimidated and confused by the process. However, when you walk through these seven simple and straightforward steps, you may be able to start taking advantage of the benefits of debt consolidation yourself.
Seven Steps to Get a Debt Consolidation Loan
- Create a Detailed List of Your Debts
- Explore Opportunities for a Secured Debt Consolidation Loan
- Review Unsecured Debt Consolidation Loan Programs
- Use a Debt Consolidation Calculator
- Get Pre-Qualified
- Decide Which Debts You Wish to Consolidate
- Finalize the Consolidation Loan Paperwork
The Seven Steps Explained
Some people have a misconception that consolidation is always the right way to tackle a personal debt problem, but this is not the case. Some consolidation loan options may not offer substantial benefits. In order to find a suitable consolidation loan program to use, you must first understand what your debt situation is. Spend a few minutes listing each personal debt that you have. For each account, include the minimum monthly payment required, the outstanding balance, the interest rate, if the account is fixed or revolving and how many months remain on a fixed term loan. It may also be wise to revise your list so that the accounts are listed in order based on the monthly payment amount or the interest rate.
There are two primary types of consolidation loans, and one of these is a secured loan. The most common type of secured loan is a home equity loan. You will need to have sufficient equity in your home to qualify for a suitable loan amount. Home loans usually have very low interest rates compared to credit cards and many other types of debts, so the interest savings could be substantial. One thing to watch out for, however, is the loan term. You may take out an equity loan that takes decades to pay off. On the other hand, you may be able to eliminate your debts faster if you keep them in their current format. You will need to weigh the pros and cons of all options before you decide how to proceed.
There are also unsecured debt consolidation loan options. Some people will consolidate two or more credit card accounts into a single credit card account. This may work well if you have a great offer on balance transfers. However, because credit cards have a revolving term, taking out an unsecured bank loan may be a better idea. A bank loan typically has a fixed term and a lower rate than credit cards have. Therefore, a bank loan may allow you to pay off most or all of your debt within a few years with a fixed payment plan.
There are numerous ways to consolidate debt, and each option may be more or less advantageous to you. After you get to know more about the feasible options available, you need to compare the pros and cons. One way to determine which debt consolidation loan program is financially advantageous is to use an online consolidation calculator. These calculators vary, but you can usually quickly determine the financial savings and payoff debts for each loan program you are thinking about using through the use of an online calculator.
Your next step involves getting pre-qualified for the loan program that you are most interested in. A credit card balance transfer does not have a pre-qualification process. You simply contact the credit card company to initiate the balance transfers. If you intend to apply for a home equity loan, a bank loan or any other type of new loan, contact the lender to determine the pre-qualification process. This important step will tell you if the program that you are interested in is feasible.
Keep in mind that you do not necessarily need to consolidate all of your debts. Some people find that they cannot qualify for a large enough loan to cover all of the debts, but they can benefit through a partial consolidation. Others decide that they are so close to paying off an account or two that they keep those debts out of their consolidation efforts. After you have decided which debts you want to consolidate, you simply complete the lender’s application process and start taking advantage of the benefits of debt consolidation.