A debt consolidation loan can help you to clear everything that you owe in a fast and convenient manner with a single payment plan as opposed to numerous payment plans. However, if you are choosing the wrong methods, you can not only waste money, but you are also going to end up being in a deeper debt situation. This is why you have to understand what a debt consolidation loan is. Based on that, you will have to decide whether it is going to make sense for the financial situation that you are in. Picking the best method is also mandatory.
Debt consolidation involves replacing small debts with large ones. For instance, transferring all the credit card debts that you have into a single card or a single line of credit! You can also take out a single loan for clearing multiple balances. Irrespective of the ways that you are choosing, you are going to make a single payment every month as opposed to making several payments. Apart from that, you are also going to pay less interest in comparison to what you were paying earlier. This means that it will be easier for you to clear all your debt faster and in an easier manner.
Understand the options that you have
Given below is a list of the options that you have when you decide to consolidate your debts.
Low rate credit cards
You can use balance transfer offers for consolidating the debts on the credit card that you have and in case if the credit is decent, it is suggested that you apply for brand new low rate cards. It is your responsibility to understand how long the rate of interest is going to last because they are not fixed. Apart from that, if you are piling a huge balance on only one credit card, the credit scores can be hurt to a great extent. If you are capable of clearing the balance quickly, it is not going to be a huge concern, because the scores will start recovering when the balance starts dropping. However, if you are stuck with this debt for a long time, you are going to have other options available.
Personal loans can help in clearing the withstanding debts that you have to clear, by providing fixed rates of interest as well as fixed payments for 7 years. They are not secured by properties or collaterals and therefore, you should have decent credit for getting a personal loan. The better the credit score, the lower will be the rate of interest. Even if you are getting lower interest rates in comparison to the rate that you are paying right now, you need to know that you can end up paying a lot more if you choose longer payback periods as opposed to choosing shorter ones. According to www.forbes.com, personal loans can make great financial sense when it comes to debt consolidation.
These kinds of loans are normally secured or guaranteed by properties, like home equity loans and home equity lines of credit. You must avoid loans that are secured by the car or maybe your paycheck. The reason behind this is that these types of loans are known to have high rates of interest and predatory terms and conditions. Understand that when you are taking loans against your house, you might have the risk of losing your home if you are not making the payments. Therefore, it is your responsibility to remain extra careful.
Retirement plan loans
Loans from various retirement plans do not require any credit check and you have to pay yourself the rate of interest as opposed to paying the interest rate to lenders. However, one thing that you should know is that the retirement plan loans can be extremely risky. In case if you lose the job and you are not capable of clearing the balance quickly, your loan will turn into withdrawal and trigger hefty tax bills. Apart from that, it is suggested that you leave the retirement money for your retirement.
Understand the situation
You have to understand how your lenders are going to view the application. To do so, you have to first understand the credit scores. You have the option of receiving Vantage scores from numerous sites. These scores will not be seen by the lenders; however, you are going to get an understanding of exactly where you are standing. The credit score will be responsible for affecting the approval of the loan and also the rate of interest that you are going to receive. You can visit NationaldebtRelief.com to know more.
Make sure that you are shopping around
It is suggested that you keep searching for low rate cards by going through various card comparison sites. You are also going to understand how good the credits cards have to be so that you can get the low rate cards. If you are interested in home equity borrowing, make sure that you are checking with the local credit unions as well as the current mortgage lenders. Credit unions are responsible for having great rates as well as customer service and hence, you need to check there for your personal loans as well. Make sure that you are not stopping there. Check other potential lenders like traditional banking institutions.
Debt consolidation is not for everyone
Most people do not consider debt consolidation until and unless they are struggling. If you belong to any of the situations that are mentioned below, it is suggested that you consider other solutions as opposed to debt consolidation.
Your credit score is bad
If your credit score is below 620, your options are going to be reduced dramatically. If you find any lender, the rate of interest is going to be high or you might have fallen into the grip of any fraudulent organization.
Your debt is more than your income
In case if you are incapable of clearing your consumer debt within three to five years, bankruptcy is going to be a better option. As soon as you see that the credit cards, medical bills, and personal loans become more than your income, you will understand that it has become impossible for you to clear them.
If debt consolidation is an option for you, it is suggested that you choose the best debt consolidation agencies. Make sure that you are creating a proper budget and cutting down unnecessary expenses so that it becomes easy to avoid debt.