Debt Consolidation Loans. If you want to manage debt, the best choice is through a debt consolidation loan because it can reduce interest and save monthly payments. A debt consolidation loan is used to pay off and simplify all your debts by combining multiple payments and accounts into one account with one lender and payment.
The success of submitting a debt consolidation loan depends on your credit worthiness. If you are lucky, you may be able to receive a lower interest rate, so you can save your money on monthly payments and overall interest. Another option for reducing your monthly payments is through long-term loans. However, a longer-term loan means you pay more debt.
Types of Debt Consolidation Loans
There are two types of debt consolidation loans: safe and insecure.
1. Secured debt consolidation loans are usually available in brick-and-mortar financial institutions, including banks and credit unions. This type of loan uses a house as collateral. Because using collateral, the interest rates are relatively low compared to unsecured loans. If you have collateral and can meet the requirements, you should propose this loan – which can save money because the interest is relatively low.
2. As the name implies, unsecured debt consolidation loans do not require collateral. These types of loans usually have easier approval requirements than secured debt consolidation loans. Unsecured debt consolidation loans generally have a minimum income requirement of $ 24,000 per year, a debt to income ratio of up to 50% and a minimum FICO credit score of 600.
Benefits of Debt Consolidation Loans
Many consumers recognize that debt consolidation loans are the right choice, because they can save money from interest and low monthly payments, and potentially increase your credit score.
• Flower savings. If your debt is everywhere with a high annual interest rate, you can save interest if you get a debt consolidation loan because of lower interest rates.
• Lower monthly payments. With a debt consolidation loan, you can avoid missed payments or default. Debt consolidation loans also reduce your monthly payments – but not interest. Indeed, you will pay a lot more but have payments that are easier to handle.
• Increased credit score. A debt consolidation loan can increase your credit score. You can also turn the debt rolling into a practical and harmless installment debt. As long as you don’t top up your card, you can still increase your credit score.
Considerations before submitting a Debt Consolidation Loan
Before applying for a debt consolidation loan, you must consider various aspects carefully, because this is a financial decision that is not easy. You also need to be sure of yourself how you will make payments and make sure you get low payments and interest.
1. Consider alternatives. You can pay less interest with an alternative debt consolidation loan.
2. Prepare a payment and budget plan. It is very important if you have a plan for how you can make new payments, especially if you have previously followed the minimum payment on your balance.
3. Shop around for the best deals. For a debt consolidation loan, you must compare at least a number of different lenders to make sure you get the best interest rates and requirements.
4. Avoid fraud. Even though a debt consolidation loan is the best solution to get rid of debt, you have to be careful because some debt consolidation options are proven to be fraudulent.
5. You must avoid new debt. A debt consolidation loan can clear your debt and allow you to start with a zero balance on a credit card.
Steps to Get Debt Consolidation Loans
To apply for a debt consolidation loan, you have to go through several steps, as follows:
1. Apply. The first step of the registration process is usually the initial agreement. You will get a soft question to get a price quote. For a debt consolidation loan, your credit history will significantly affect the interest rate, because most lenders use risk-based pricing. With a very good credit score (FICO 740 or higher credit score), you have a high bargaining position to get the low interest rates offered by lenders. Conversely, if you have a low credit score, lenders will offer high interest rates.
2. Selecting the loan terms. Loan conditions can be a consideration in choosing how long you will repay the loan. Typical loan amounts range from $ 1,000 to $ 50,000, depending on your credit worthiness. The loan period is usually between two and five years. You will be charged an interest rate and all initial fees (usually 1% -5%) associated with the loan.
3. Complete your application. After the application is complete, you confirm the loan details and verify your identity, income and other qualification information. The lender will then examine your credit report to verify credit worthiness, before finally the lender conducts a rigorous investigation into your credit.
4. Get approval and close. Once approved, you will go through the process of closing and disbursing funds. Most debt consolidation loans offer wire transfers for funds, but there are some who pay the borrower directly or send checks for bank deposits.
5. Pay back. After you receive funds, you will start paying back the loan in accordance with the conditions stated in the agreement.