Debt Consolidation Loans
Debt consolidation loans are probably the most used method for consolidating multiple debts. A debt consolidation loan is basically the combination of all your existing debts, transferred into a brand new, much larger loan. That way, instead of having to make multiple payments on various loans, you would be able to focus only on a single monthly payment. Normally, depending on what the state of your credit score is, you may be able to get better loan terms on your debt consolidation loan compared to the overall terms of your multiple debts. That includes a lower interest rate. With a debt consolidation loan, regardless of the state of your credit score, you can normally lower your overall monthly payment. Sometimes, that may be at the cost of a longer repayment period. However, a lower monthly payment may give you some breathing space in your monthly budget. With all that being said, debt consolidation loans are not an easy fix. They do not work as a miracle, and sometimes, consolidating your debt with a debt consolidation loan may even cost you more money. So, much like with most things in life, debt consolidation loans have both advantages and disadvantages.
Debt consolidation loan advantages
The first thing that should be pointed out is that from having a number of debt bills to calculate and stress over by consolidating your debts with a debt consolidation loan, you would only have to think about a single monthly bill. That will give you the opportunity to focus on other important areas in your life and manage your other, regular monthly bills in a much easier fashion. Having a single monthly payment will give you a lot of time to focus on other stuff, maybe spend some time on things you actually enjoy. After all, life should not be all about financial stress and exhaustion, right?
- A debt consolidation loan can mean a lower interest rate. Yes, if you have a perfect credit score, or at least a good one, you may be able to qualify for a debt consolidation loan with a lower interest rate. That way you would be able to save a significant amount on interest.
- By consolidating your multiple debts with a debt consolidation loan, you will be able to lower your monthly debt payment. Having a lower payment can allow you to have some extra cash at the end of the month.
Debt Consolidation Disadvantages
While combining all your existing debt into a single monthly bill may sound like a really good idea, you need to know that a debt consolidation loan can also have a negative impact on your finances. It may not really be the right option for you. Here are some potential cons that you may want to keep in mind:
- After accounting all the expenses and fees that come with a debt consolidation loan, you may find that you did not save money, but in fact it turned out to be a bit more costly. It is better that you use a debt consolidation calculator to determine that in advance.
- A debt consolidation loan might come with a higher interest rate. In fact, if you do not have a perfect or at least a good credit score, the chances are that getting a debt consolidation loan will come at the price of higher interest rate.
- Before you choose a debt consolidation loan lending company, you need to find out whether there would be any penalties for closing your current loans.
- Even though by consolidating your multiple debts with a debt consolidation loan, you will most likely have a lower monthly payment. Sometimes that may result in a much longer loan repayment period which can ultimately cost you more money in the long run.
With all that said, you may want to consider keeping all your multiple debts just as they are.
Debt consolidation calculator
By using a debt consolidation calculator, you are able to compare the different costs of all your existing debts, with the terms that you can get if you shuffle all these debts into a debt consolidation loan.
How does a debt consolidation calculator work?
You just have to enter the amounts and terms of all the debts that you want to consolidate. Once you enter all the necessary data of your current debts, enter the same information regarding your debt consolidation loan so that you can see whether you will be able to save money by consolidating your loans or not.
Where can i find a debt consolidation calculator?
There are many debt consolidation calculators on the internet. You just have to search and you will easily find it.
Steps for consolidating your debt
Round up all your debt details
If you have decided to consolidate your multiple debts, you would need to have the needed information about each of these credit types:
- Prepayment penalties
- Interest Rate
- Annual Fees
Examine all options that are available to you
Once you have gathered all your debt details and you are completely aware of the exact amount of money that you all for all of your existing debts, it is time for you to explore all the available options you have for debt consolidation.
Find out if you can qualify for a credit card balance transfer on a low rates credit card
- Explore the option of applying for an ULOC (unsecured line of credit). An unsecured line of credit is quite similar to a standard credit card since you will get a permission from the bank to gain access to an unsecured line of credit. That will happen if you sign an agreement stating that you will pay back that line of credit with interest and on time.
- Before you make your choice on what debt consolidation type to use and what debt consolidation loan lender to work with, do proper research on different debt consolidation loan lending companies and see what each one has to offer. Different private loan lending companies tend to offer different loan terms, including fees and interest rate for the same services. Try to find a loan lending company that offers a debt consolidation plan that can really make a positive impact on your specific financial situation.
- Once you gather enough information about what different debt consolidation loan lending companies and organizations are offering, you should do a list and narrow that list down until you are left with the debt consolidation loan lender that suits best what your specific financial situation requires.
Submit your debt consolidation application
Once you have completed your research and you have decided on which loan lending company you are going to work with, submit your debt consolidation application and follow the process.
It is not going to work unless you fully dedicate yourself to reaching your goal
Even if you have done a wonderful job calculating your debt consolidation, making sure that it is going to save you money. Even if you have picked the perfect debt consolidation loan lending company that perfectly suits your unique financial situation, it will all be pointless unless you put in the necessary effort. You need to commit to your goal of getting rid of your debts, and you need to sustain that level of commitment throughout the whole repayment process. Only then you will be able to finally live a life free of debt.