How to get loan consolidation
The most important thing is that you are completely aware of your financial situation – how much you earn, how much you owe, when are the bills and debts due. That will help you understand when you are in trouble and need a solution. Loan consolidation is a widely used method for getting out of financial problems. In this article, you can find further information on its characteristics, benefits, how to get one and use it wisely in the article. There is also additional information about the other options available.
Loan consolidation explained
The term consolidation comes from financial accounting and is often referred to consolidation of financial statements when there are subsidiaries reporting under the parent company. In more general terms, it means combining two or more financial items like assets into one. When it comes to personal finances, it is used for merging multiple debts, high interest rates and credit card debts into a single one. That makes the payments far more manageable. The interest rates are usually lower so it is beneficial. Loan consolidation is done through a debt consolidation loan.
A consolidation loan is a loan that you take in order to repay your other loans. You need to consolidate your loans to be able to do that. After consolidating your loans, you no longer owe your previous creditors – you just need to repay your consolidation loan lender. You are supposed to use the money from this loan to pay off the other creditor completely. Consolidation loans are beneficial because they reduce the monthly payments you have to make. That is usually done through extension of the payment period or a reduction of the interest rate.
Payday loan debt consolidation
Payday loans are normally short-terms loans. However, if you are late in your payments, there is a possibility to renew it for another payday period and that can happen a certain number of times. In those cases when you already have a payday loan for a while, the interest rates will start adding to the amount you owe. When you have several payday loans that are overdue and even if they are not, you may want to consider consolidating them. You can get a loan consolidation loan and repay all your payday loans in full. That will help you avoid further complications the high interest of payday loans and the payday loan debt cycle. Payday loan debt consolidation is one of the best ways to reduce the current number of your payday loans. That will save you a lot of time and money since payday loans have one of the highest interest rates.
Other lending options
The two main alternatives to loan consolidation are debt settlement programs and debt negotiations. You need to understand the differences of these methods.
With a debt settlement program, you will also get a reduction in the payment. However, unlike with a consolidation loan, there is a middleman – the debt-settlement agency. Its role is to negotiate on your behalf with your creditor to try to reduce the interest rates. That makes it easier for you since you don’t have to do it yourself. Of course, the debt settlement agency does that for a fee. However, with a consolidation loan, all that is avoided and no fee is charged. Another difference is that with a debt settlement program, you pay the debt settlement company. That can be done in a lump sum or in monthly payments but you don’t pay your creditors off directly.
Debt negotiation is a kind of a settlement. You pay your creditor a certain part of what you owe and he agrees not to seek the rest. It is hard to achieve and there are many possible scams. It is far more secure to simply consolidate your debts and repay them at once. Being debt-free is the best thing you can do and the best way to achieve it is through loan consolidation.
Why choose debt consolidation
Only one debt
Consolidating your debts solves many problems. You no longer have to worry about due dates and creditors. From that moment on, you will only have one debt – the consolidation one loan and it is spread over a relatively long period of time and separated into small manageable payments. That makes it really easy to deal with. In addition, it will help you improve your credit score through having a history of many regular repayments.
Only one creditor
The benefit of having only one creditor is that it drastically reduces the number of calls, letters and emails you receive from your creditors when you are late on the monthly payments. Actually, with loan consolidation, the repayments are so easy to cope with you will probably not have such a problem at all.
Simple and easy to achieve
Debt consolidation is one of the easiest ways to become debts-free. All you have to do is get a consolidation loan and repay everything else you own in full. Receiving such a loan is not that hard in the first place and because of preferable conditions it offers, it is really easy to pay it back afterwards.
How to get debt consolidation
Know your credit score
To get a debt consolidation loan, you will need your credit score. The terms of your future loan will be widely based on your credit history so it is very important that you have it up to date. It is also important that it is accurate. The higher your credit score, the better loan terms you will be able to get. So go over it and make sure everything is correct and updated.
Know your options
Depending on your goal, there are different options you may want to consider. You need to find the balance between your needs and what can be realistically achieved. You need to figure out what is the best way to achieve it.
You want to save money
Loan consolidation offers you a very good chance of saving money through its lower interest rates. If you are not late on many of your payments and you are in not so much trouble, you can try to prioritize your debts and pay off the most urgent ones first. You should be careful because some loans have penalties for early payments. Go over your debts and read the terms once again very carefully. Decide whether to try to balance all the debts or take the highway and consolidate them. Consolidating is a simpler solution than having to keep track of all the details. So if you are not very good in math and you are not highly organized, consolidation may just be the best option to achieve your goal.
You want a lower interest rate
One of the main advantages of debt consolidation is having a lower interest rate. In some cases, it is possible to achieve this goal through another means. You can call your credit company and try to renegotiate your terms with them. You need to have a really good credit score to be successful in such negotiations. In case your offer is rejected, you may then try to switch to a credit card with no interest or at least one with lower long-term payments. Of course, all that is not possible if you don’t owe a credit company but several different creditor. In that case, you would have to try to re-negotiate with all of them which can make the task far more difficult. In addition, they may not be willing to agree and they have no obligation to comply with your requirements. Therefore, it will be much easier to consolidate your loans into a single loan with a single creditor.
You want to be on top of your financial situation
Debt consolidation gives you a rather good sense of control. Once you have your debts consolidated, you can track your payments easily. If you are confused about your finances, you can try contacting a credit counseling agency. They will be able to advise you. However, take note that there should be no charge free and you should also be careful for scammers.
Find the right loan for your consolidation
There are two types of consolidation loans – secured and unsecured. The difference is that the secured ones are backed by collateral. Because of that, secured loans als have lower interest rates. If you have something to provide as collateral (your car) and you are sure you can keep up with your payments, a secured loan is a rather good way to go. You should consider the risks though. If you fall behind on your payments, your lender can foreclose on whatever you have provided to secure your loan.
On the other hand, unsecured loans are safer for you because you don’t have to risk any of your assets. It is also possible to receive a good deal for an unsecured loan but that will depend a lot on your credit score. If you have a good credit history, you should be able to get a good interest rate on your loan.
When choosing a loan, you may also like to compare offers from different lenders. Do a little research, check different websites and see what terms are being offered. Make sure you understand all the terms, including the fees and other related conditions such as penalties. If you have questions, don’t hesitate to ask the lender or other people who have used his services before. You can also find a lot of useful information online.
After you have decided what type of consolidation loan you want to take and which company’s conditions you like the most, don’t forget to estimate the real value of your loan. Don’t only look at the monthly payments. You should also consider all additional fees. It may turn out that you are turning a bad situation into a worse one if you don’t foresee all the possible costs associated with the consolidation loan.
Know your contract
Read your contract very carefully. Read it until you make sure you have fully understood it. If it seems like there is something is wrong, check. Consult a lawyer if necessary. If you sign something that you don’t understand, it can cost you a lot later. Your signature is equivalent to your consent of whatever is stated in the contract. Therefore, read your contract carefully
How to use debt consolidation wisely
Try to repay your consolidation loan as quickly as possible. Keep up with your monthly payments even if it means you have to cut back on some other expenses for a while. The best thing you can achieve is being debt-free and that is only possible after you have repaid that consolidation loan. At some point if you have trouble with the repayments, you may consider borrowing from a trusted family member or a friend. The important thing is to repay the consolidation loan as soon as possible.
Cut back on expenses
To stay out of trouble in the future, try to cut back on unnecessary expenses. That will help you save money for bad days and you won’t need to borrow again. It is better to go without some little luxuries than being in debt.
Keep track of your money
Keep a regular budget to know how you spend your money. That way, you can be in control of your financial situation. It is useful if you list income and expenses on a chart which will give you a clear idea of how you’ve spent your money. Knowing where your money goes is essential.
Keep up the good work
Managing your loans, consolidating them, finding a decent lender…all these take a lot of effort. However, do celebrate the moment when you are debt-free and try to stay on top of your finances in the future.