If you have several loans and you are looking for the best way to control your finances, consolidating your debts can be the solution. You can merge all your debts into one loan that will be much easier to handle. There are some good reasons why a debt consolidation loan may be a great option for you. Consolidating your debts can make it much easier to budget your monthly expenditure. There are benefits of having one personal loan instead of having credit card debt.
Simplifying your finances will mean that you only have one monthly payment instead of having several. You can use the consolidation loan for paying off the debts with higher interest, leaving you with a single loan at a much lower interest rate. In order to consolidate your debts, you need to approach your lender to find out the help you can get.
Adding the debt to your mortgage
If you are paying a mortgage, you can find out if you have adequate equity in your home so that you can consolidate your debt with the mortgage. Most people prefer this option because mortgage interest rates tend to be much lower than most of the other loan interest rates. It also helps that mortgages can be paid or amortized over a period of 25 years. With this option, you can arrange to make much lower monthly payments. If you choose this option, try to ensure that you pay off the extra mortgage as soon as possible and avoid doing this often. If you keep doing the same thing every couple of years, it will take you long to get your mortgage paid off.
Applying for a debt consolidation loan
Talk to your bank or credit union to find out if they can give you a debt consolidation loan. It is important to know that banks and credit unions typically only lend around 10% of the individual’s net worth on unsecured basis. This means that you may not get the full amount that you are asking for. The institutions are only willing to lend more if the borrower has some security for the loan. If you have a valuable asset like a home; this can act as security for the loan. Most people try to get consolidated credit payments to get out of debt.
When you decide to consolidate your debt, there are some important steps that you should take so that you can reap the benefits.
Check your credit report
Your first step before applying for the loan should be to check your credit score. Review the report to look for errors that can affect your ability to get the loan. Some mistakes on the report or some negative issues that you may not have been aware of can occur. You can check your credit score online free and this will help you to identify your strong factors and the areas that need some work.
Take stock of your debt
Take an inventory of all your debt so that you know what you are dealing with. Create a list of all the balances, interest rates and monthly payments on the loans and credit cards that you want to consolidate. This list will help you to identify the debts that should be a priority for consolidation because of high interest rates.
Research your options
When you determine the debts that you want to consolidate, the next step should be to research the consolidation options available. Apart from your bank or credit union, there are other lenders that offer the personal loans. If you decide to use online lenders, make sure that you carry out research to confirm that you are dealing with a reputable lender. Find out about the lender’s credit requirements.
Consolidate your debt
It is important to realize that your application can be denied, if this happens, you can contact the lender to find out why and ask for reconsideration. If your application for the loan is accepted, it is time to consolidate your debt. You can use the new loan to pay off your debts and if the credit line is not enough to cover all your debt, focus first on the loans with higher rates or balances.
Pay off your loans quickly
It is a good idea to try to pay off your loans as fast as possible. Adding extra money to your monthly payments will help you to pay off the new loan much faster. Remember that the sooner you get out of debt the better. Avoid tapping into the credit lines that you have paid off, as this will only serve to take you back into debt. The goal of taking the consolidation loan is to get out of debt, not get further in it!
To make sure that you reap benefits of the debt consolidation, you need to come up with some new financial habits. Learn how to budget and pay off your credit cards on time. Avoid accumulating new debt as you are paying off the loan.