Debt consolidation is when you obtain a new loan to pay out several other small loans, bills, debts that you are currently making payments. When you do this, you can effectively bring all debts into one combined loan which you pay a monthly payment. Merging these loans into one is called consolidation. In reality, it is impossible to merge all loans into one because each loan is associated with different interest and a repayment period. Each loan has a contract of its own and when you default the contract you may face legal action from the creditor. However, when you consolidate the loans you have chosen to combine and use the loan to repay all the existing debts. This is an avenue which you can use to manage your loans easily because you will be dealing with only one loan and do not have to follow up on several loans with different deadlines and repayment periods.
How to Consolidate Loans
Loan consolidation process is quite simple. Once you have made a loan request on our website, we will strive to connect you with a lender in our network who will in turn fund your loan. Once we have sent your loan request to the lenders in our network, they will give you feedback if you qualify for the loan or not. If you meet the lender’s requirements, he will give you all the details about the loan rates and repayment periods. You can choose if you want the loan from the lender. The money is deposited to your active checking account. Alternatively, you can let your lender to work on your behalf to deal with the creditors by repaying the loans. Since they are experienced in this field and they will negotiate a better deal for you. Benefits of consolidating loans include:
- Simplify your finances. Instead of having to keep up with several debt payments each time, you only have one debt to repay.
- You can save some money because of the reduced interest rate. Your lender will negotiate for a better interest rate and you can in turn pay less interest rate than previous small loans, saving you some cash.
- It makes your life easier. Your lender will consider several factors when choosing a loan repayment plan for you.
- You can pay off all your debts faster. When you have a long term financial plan to get out of debts, you can organize ways to deal with emerging financial issues by consolidating your loans. When you consolidate your loans and repay on time, you will be done within a short period because once you finish with the consolidation loan, you would have cleared your loan.
How are consolidation loans issued?
In the conventional system, when you are given debt consolidation loan, the company uses the fund to repay all your loans or you are given the money and you have the obligation to clear all your loans. Repaying loans is an easy once you have consolidated all small loans into one large loan.
Determination of Interest Rates
There are two factors that determine the interest rate of the consolidation loans – the collateral offered and your credit score. However, this is only applicable to conventional lending institutions. Credit score is a representation of the creditworthiness of an individual and his ability to repay the loan on time. The likelihood of loan repayment is determined by a person’s credit score. The better your credit score, you increase your chances of qualifying for a loan. Collateral is an item that is used in conventional lending systems where the lender can sell the item to recover lost loan or the loan that the borrower defaulted.
- Many Americans have less than stellar credit scores and they cannot qualify for conventional loans offered by banks and other lending institutions. However, we provide an avenue for borrower to access credit facilities despite poor credit scores.
Pros of Consolidating Debts
There are several advantages of consolidating debts. Benefits of consolidating debts include:
Settle debts easily
When you consolidate your loans, you are in a better position of settling your debts easily. Your loans will be marked as settled, therefore giving you a breathing space as you plan to clear all your debts. You can save some money by settling the loan at a lower interest rate than what other small loan companies will charge you for the loans. Reducing your interest means your will have more money going towards the principal balance. With this, you can pay off your debts sooner.
Improve credit score
The other main advantage of consolidating your debts is that there is a high chance of improving your credit score because you have a lower credit utilization ratio. When you make timely payments your credit score will improve considerably.
A single monthly payment
You will find it easier to repay the loan because you will be dealing with a single bill each month rather than three or more on the list. This helps in lowering down your commitments, making it easy for you to repay the loan.
When Does Consolidation Make Sense?
The main reason that people consolidate loans is to manage one loan and deal with emerging crisis easily. It can be a useful tool if you are looking for a way to simplify your loan repayment process. You will pay less interest rate because your lender will negotiate for a lower interest rate. Moreover, you balance process can be simplified because you will clear all the mess in the area by complying with modern regulation on the loans.
- When you decide to consolidate your debts, you want to pay off your outstanding loans within a short period. Debt consolidation is not a phenomenon that is not for everybody, you should weigh your options and determine the right type of loan that you qualify for before you choose a loan plan for yourself.
Once you have understood what a consolidation plan is all about, you will be in a position to determine if consolidating your loan is a good idea. You should consider your credit score and financial goals before choosing a debt consolidation plan. It is important not to fall into a debt cycle because this will ruin your credit score considerably. You should not use it as a solution to your long-term financial problems. You can speak with consolidators and other people in the category to understand all about debt consolidation.