Everything That You Must Know about Debt Consolidation Loan Before Applying for It

Hardly anyone in today’s world can claim to have fulfilled all of their responsibilities and wishes without needing to borrow money from time to time. Times are hard, and at some point in our lives, we feel the need to take a loan to manage expenses on time efficiently. However, repaying the borrowed sum may sometimes be challenging.

If you have multiple loan repayments to think about, and if the constant payment reminders are stressing you out, you might want to consider availing a consolidation loan.

applying for debt consolidation loanWith proper debt consolidation, you can bid goodbye to the burden of making multiple payments each month. You would only need to pay once and on a monthly basis after consolidating all your loans into one. Restructuring all existing debts and combining them into one may even help to reduce the overall interest rate to some extent. This type of loan can relieve some stress, both financial and psychological, by helping you to put a check on other debts that may keep piling up otherwise.

What is a debt consolidation loan and how does it work?

Debt consolidation typically refers to the process of taking out a loan to pay off multiple others loans, liabilities, consumers debts and so on, which are usually unsecured ones. This new debt may be massive in size, but it also has more favorable payoff terms. It may even come with a low-interest rate or lower monthly payment, and sometimes, it may come with both. This type of loans can be useful in paying off student debts, credit card debts and other forms of financial obligations that one may accumulate over a considerable period.

In theory, debt consolidation is only the process of financing multiple loans, but it is noteworthy that there are specific instruments which creditors can offer the borrowers. Creditors willingly do this due to many reasons. One of the main reasons is that this type of loan significantly increases their chances of collecting from a debtor. It is also one of the main reasons that established and recognized financial organizations like banks and credit unions offer debt consolidation loans to those who face difficulty in managing their payoffs or the size of their outstanding debts. Due to this, debt consolidation companies have also become quite prevalent over time.

Which types of loans can you consolidate with debt consolidation?

There are quite a few types of loans that you may want to consider while consolidating your debt. Out of these, the most common ones are:

  • Home equity loans
  • Credit card balance transfers
  • Personal loans

Home equity loans: This loan is taken out by using the equity in your home as collateral. A fair amount of capital and good credit are the prerequisites for a home equity loan. Even though this financial arrangement puts your home on the line, it does come with typically low-interest rates. Down the path, if the payments become too much to bear, you can go with foreclosure on your home.

Credit card balance transfers: This service enables you to transfer your credit card balances, all of them, into a single credit card. It also comes with a low-interest rate. What is noteworthy here is that low balance transfer rates are mostly promotional rates, and in most cases, they expire after a period of six months. So, you must keep track of time and note when the typical transfer rates will start to apply. To use credit card balance transfer in a debt consolidation loan, you must first have a credit card with a credit limit that is big enough to hold all your credit card debt.

Personal loans: As per the experts at nationaldebtrelief.com, personal loans are a popular choice for debt consolidation. However, you must first be able to get a loan that is large enough to cover all the balances you may have. A personal loan is an unsecured loan. It comes with the condition of fixed payments over a stipulated period. Upon approval, you may use your this credit to consolidate your debts.

What are the main benefits of debt consolidation loan?

Debt consolidation loan, if you qualify for it, can certainly put you in an advantageous position, and that too, financially, socially and psychologically. Take a look at the five main benefits of going with debt consolidation loan:

Single payment: As stated earlier, this type of loan enables you to combine all your debts into one. This way, you only need to make one payment each month. When the loan amount has been paid off, you would have successfully taken care of all your debts and would not have to worry about any consecutive payments.

Lower interest rate: You can save a significant amount of money as this type of loan comes with less interest, especially when compared to the astronomical interest rates on credit card loans. With debt consolidation loan, you can save money not only on monthly payments but also over the lifespan of the credit.

Good credit score: Inconsistent payments compromise your credit score severely. If you manage to get your debts consolidated and stay on top of the monthly payoff, you can work towards rebuilding your credit score steadily.

End to collection calls: Often the failure to make payments on time leads to the creditor handing over the collection duty to agencies. It means that your phones start ringing more often with collection calls. It increases both financial and societal pressure on you. With a debt consolidation loan, you can put an end to such harassments.

Stress reduction: Can you imagine the peace when you know that you do not have to worry about paying off multiple loans, and when you are not disturbed by creditors’ call now and then? All you have to do is arrange for just one payment, on time, each month.

One fact to remember while trying to consolidate your debts with a new loan is that this borrowed sum is not exactly helping you get rid of your debt. You will still have to pay your dues; you will have to plan your finances efficiently, and you will need to be careful about not borrowing more. However, having to pay just one stipulated amount every month might make you feel relaxed. You are just shuffling the debt around to find a more manageable way to pay it off. Practicing discipline and avoiding any new loans until you repay the entire consolidated debt amount would indeed be wise. Try to reduce your expenses so that the need to borrow anew does not arise. In case of difficulty, you can always consult a financial advisor.

Signs You Should Not Use A Balance Transfer Card As A Debt Solution

Signs You Should Not Use A Balance Transfer Card As A Debt SolutionThere are many reasons why you can use a balance transfer card as your debt solution. However, there are also several reasons why it is not the best option for you. It is important that you are aware of these signs so you do not make a mistake when it comes to your debt relief option. You have to understand the effects that it will have on your financial situation.

Balance transfers refer to the use of a new credit card for consolidation purposes. You will transfer the balance of all your other credit card accounts and put it in this new card. Why? Usually, it is because this new card is offered with a lower interest rate.

Credit cards are notorious for having a high-interest rate. If you are carrying over the balance to the next billing cycle, this means the finance charge that will be added to your debt will be quite big. With the average credit card debt at $8,377, you do not want to add more into it. If you want to save money on your debt payments, you obviously have to do something about the interest rate.

One way to lower the interest rate is to negotiate with the creditor. Sometimes, threatening with balance transfer does the trick. If that means they can lose you as a client, they might relent and lower your interest rate. However, there are times when that is not enough.

This is where a balance transfer card becomes helpful. These cards are offered with a very low-interest rate – of 0%. After paying a balance transfer fee, you can transfer your multiple credit card debts and enjoy the lower interest rate. Consolidating your multiple debts into this one card will also make things easier in terms of payment monitoring.

Reasons why balance transfer is not good for you

Now that you know how a balance transfer card can help out, it is time to identify when it is not a good idea. You need to look both ways so you can be certain that this debt relief option is the perfect fit based on your current credit and financial situation.

While it can help you save money through the lower interest rate, it does have negative implications. For instance, a balance transfer can lower your credit score by 30 to 40 points. So if you are unsure about this, consider the following reasons that will tell you that you should opt for another debt solution.

You cannot avail of the promotional interest rate.

This is probably the most obvious. The primary reason to use balance transfer is to have a lower interest rate. If for some reason you cannot qualify, then it does not make sense to transfer your existing credit card debts. In case the interest rate will remain the same as the average of your existing cards, then do not change anything about your debt situation. There will be no improvement anyway – except for the fact that your debts will be consolidated.

You cannot pay the existing credit card debts.

It is true that a balance transfer card will help you save money because of the lower interest rate. However, it will not lower your principal balance. If you are unable to pay your existing credit cards right now, then a balance transfer may not be able to help you out. There is no reduction of debt here. If you are struggling with debt payments, you may want to opt for a different kind of debt relief program – like debt settlement.

You intend to use it as a credit card.

A balance transfer card is still a credit card. You can use it for purchases. However, you have to understand that the low or 0% interest rate is not applicable to new purchases. If you use it for new purchases, this will have a higher interest rate. Sometimes, it might even be higher than your existing cards. So try to use this card only to help you pay off your existing debts. Do not use it so you do not add more debt into what you are already dealing with.

You will have a lower credit limit.

Apart from the interest rate, you also have to consider other factors when it comes to the balance transfer card. One of them is the credit limit. This has something to do with the credit score. If the amount that you will transfer is higher than 30% of the credit limit, that can pull your credit score down. Considering the debt that you owe, you want to make sure that it will not cause that much negative effect on your current financial situation. While balance transfer can lower your credit score, you need to approach it with the intention of improving your credit situation.

You cannot pay the debt within the promo period.

The low-interest rate in a balance transfer card will not last forever. Once the promo period is over, the card will resume the usual high-interest rate. If you are caught with a lot of debt when that happens, you might find yourself in a deeper financial situation. A balance transfer is only a good idea if you can pay it off during the promo period. But if you are sure that you cannot pay at least a significant amount of that debt by the time the promo expires, then you better look for an alternative debt solution.

Other debt relief options apart from balance transfer

If it turns out that using a balance transfer card is not the right solution, do not worry. There are other debt relief options that you can use to get yourself out of your credit problems. Here are three of them.

Debt Management

This is a debt relief option that involves a credit counselor. The debt management company will provide you with a credit counselor who will help analyze your credit and financial situation. With a minimal fee, they will create a Debt Management Plan that will serve as your repayment plan. The intention of this plan is to help make debt payments easier for you. Once you are okay with the plan and you are certain that you can afford it, the counselor will present it to your creditors for approval. They will also try to negotiate for a lower interest rate – but this is not always a guarantee. If they agree, you will send a single monthly payment to the credit counselor. This is the total monthly requirement for all your debts. The credit counselor will take charge of disbursing the funds to all your creditors.

Debt Consolidation Loan

This is another option for you to get out of debt. This will involve borrowing a huge loan that can cover all your other debts. According to reports, the average American has multiple debts that include credit cards, mortgages, car loans, and student loans. Consolidating all of these into one loan will make the payments so much easier to track. It minimizes the chances of forgetting a payment. Not only that, if you can lower the interest rate, that would help you save money – especially when it comes to your credit card debts. You just have to make sure that your credit score is still high enough that it will help you secure the best interest rate.

Debt Settlement

Finally, you have the option to settle your debts. This process involves negotiating with your creditors to allow you to pay only a portion of what you owe. If you owe them $1,000, you will only pay them $600. The rest of the $400 will be forgiven. This will take a lot of negotiation to happen so you need to be prepared. The creditor will obviously say no at first. That is okay. You can try again. It is important to convince them that you cannot pay more and that your financial situation is not likely to get better anytime soon. The idea is to get them to accept what you are offering instead of getting nothing at all. If they agree, you need to make sure that everything will be in writing and that they will forgive the rest of what you owe.

4 Reasons why you need a debt consolidation loan

get debt consolidation loanIf there is one thing that many people do not love to be associated with, it has to be debts. Most often, you will run away from debts not thinking about how you can put it into good use to bring about improvement. Most people will stay away from loans because they probably lack the discipline of paying back a loan in time.

If you are a business person, then you must know the importance of loans. People use loans to grow their business, to start business among many other things. Only risk takers may be able to reason with me in this. Business people should always be risk takers. You need to be in a position to go out there and do whatever it takes to bring about progress to your business.

Most businesses will require you to take more than just one loan. In such a case, you will find yourself in multiple debts. This should not make you tremble thinking that you may be bankrupt. Instead, think debt consolidation. This would be the best way to settle your debts in the event that you are in multiple debts.

Debt consolidation is simply taking all your loans, putting them together then paying them off as one loan at a lower interest rate. A debt consolidation plan for your business would benefit you for many reasons. Some of them are:

  • Pay off loans faster

It is only with a debt consolidation loan that you will be able to pay off your loans faster and more conveniently. This is because you will only need to pay to one account, which will then be responsible to pay your other creditors. You will not have to worry about paying money to several accounts every end of the month.

Had you not had a debt consolidation plan, you may not be able to follow with what loan you cleared and which is still pending, how much you have paid so far and what not.

  • Enjoy reduced interest rates

You cannot compare the interest rates of 5 different loans being paid independently to that of one loan. Having your loans put together and paid off as one will get you to pay off your loans at an interest rate of even 10% or lower.

  • Gives you an easy time with your business

You must be aware of the very many notifications that you get once you take up a loan and it is time for you to pay it back. With a debt consolidation plan, you will no longer be receiving those numerous mails every now and then reminding you to pay off your loans. Your lender will be the one to deal with that.

  • No more loans until you are done

A good debt consolidation plan will instill in you the discipline of clearing one debt before you take up another. Most debt consolidation top debt consolidation companies will not allow you to take up another loan until you clear the existing one.

DIY Steps to Get a Debt Consolidation Loan Application Approved

A debt consolidation loan is a loan that you take so as to pay off your accrued debts and loans. You may be wondering why you need to take a loan to pay off another loan. Simple; the consolidation loan provides a means for you to manage your debts because, once the loan is approved, you will have a single loan to service rather than the current multiple.

A big number of debts adds financial burden to your shoulders and it could be tough leading a comfortable life when you use your income to pay off debt then get into more debt to get by. Unfortunately, this is the situation with many people and this has resulted in the high consumer debt in the country.

A consolidation loan provides relief from creditors who pester you for non-payments. The loan is also an effective solution if you keep forgetting to repay all your bills and loans ending up with high late fees and penalties. However, it is important to note that this debt management process should only be pursued when one is certain that they are going to change their lifestyle to prevent accumulation of more debt.

If you are true to yourself and willing to cut down expenses on credit management consultancy, you are capable of taking the debt consolidation bull by the horns yourself.

Here are the main steps to a DIY debt consolidation process:

  1. Prioritize your debt

The first step to debt freedom is facing the problem head on. You have to know who you owe and how much they are owed. To do this, you should prepare a list of all your creditors. The best way to do this is to set up two columns in an Excel spreadsheet then list all your creditors and the amount you owe each one of them.

To do this well, calculate the total amount you owe including any fees or transaction charges plus the interest rate. There are many resources online to help you calculate loans or debt owed. Look up loan amortization calculators and general consolidation loan calculators to get the exact amount owed to creditors. Creditors aren’t very forgiving and you should have the exact digits to the cents.

Once you have the accurate figures, sort your creditors list in order of priority. By prioritizing and noting the creditor you owe the most, you will be able to visualize the seriousness of the problem and create stronger strategies.

  1. Get your credit score information

You will get lower interest rates on a debt consolidation loan if you have a good credit rating. Contact the relevant financial bodies for your credit history. While at it, verify the details in your credit history.

  1. Create a budget and calculate affordability

If you have one source of income, then you know exactly how much you have to spend. Having different sources of fluctuating income could be a challenge but still an important facet in planning.

To create a reasonable budget, stick to your Excel spreadsheet. Put down your total income against the debts above and all the utility and other living expenses. You will find that you have a negative balance but this is how you know just how much you owe and how much change is needed.

To create a more strategic budget, you should gather all your receipts and bank statements. Use these to know how you spend your money and how not to. You may find that you earn enough but you have many unexplained and unreasonable expenses. Cut these out of your budget.  Find expenses that can be cut down. These will affect your lifestyle, but to lead a debt free life, such steps are crucial.

Once you have set these out, determine your debt repayment strategy. By saving using the watertight budget, you will find that you have extra money and you can pay a creditor more than you already do. How much can you afford now?

You should also calculate how much money you need to raise through the consolidation loan in order to repay all debts fully.

  1. Negotiate

With a detailed plan on which debts you afford, you should be able to contact the creditors you have decided to pay first. Note that your creditor could have sold your debt to a collection agency and you may have to follow them up.

How to contact your creditors

  • By now you have a contact list with a priority list for whom to contact first and last.
  • Contact the creditor by phone, email, or letter. Whatever your means of communication, you should be polite even when the creditor is rude.
  • Inform the creditor your reason for contacting them then give them details of your debt. Give reasons for being behind on the loan payment, your current income and obligations, your financial plan to get out of debt, and the amount you can afford to pay monthly. It is prudent to inform the creditor of all debts and creditors.
  • Ask for your account details to verify your debt account status.
  • Show them your budget and present the offer you have for them. Inform them that the offer will be implemented under a debt consolidation process. Note that complete honesty is important whether you are dealing with a creditor directly or a collection agency.

A debt consolidation company should only come in to the table in creditor negotiations when all your efforts fail. You should also negotiate with the debt consolidation company for a favorable rate on the loan.

  1. Debt validation

Your credit could have been turned over to the collection agency. Contact them and ask them to validate the loan before you start repayments.

  1. Apply for the loan

With all your financial details at hand, your debt consolidation loan application should be approved within a short time.

  1. Consolidating credit card debt

If you need to consolidate your credit card debts, talk to the credit card company and ask for a balance transfer consolidation. This is an affordable debt management system for the high interest credit cards. Interest rates account for expensive loans and if the interest rate is lowered, you will be able to pay more monthly reducing your debt.

In conclusion, to get a debt consolidation loan, these steps will help. They will also help save money. Negotiating with creditors shows your genuineness and it helps in getting an affordable loan eventually.

How to Find a Reliable Debt Consolidation Loan Company

Times are hard and with a sluggish global economy, the situation is expected to continue. In such an environment most household owners are deeply in debt. From credit card debt, car loans, mortgages, tax, among other pending bills, there are so many financial obligations and paying for them every month can get hectic. If you have multiple debts with different lenders you appreciate how frustrating it gets when the bills start coming in. This is where debt consolidation can help you.

What is Debt Consolidation?

While there are many ways to relieve the pressure off your multiple debts, consolidating your debt into a single loan still remains the most viable option. A debt consolidation loan basically pays off your small debts to allow you to make a single payment and avoid the hassle of organizing multiple loan repayments every month. These loans are offered by a third party which can be a financial company or a non-profit organization.

It is important to distinguish debt consolidation from debt management or settlement. With a debt consolidation loan there are no negotiations with your creditors because the payments are made directly and you now have a single loan with the lender. Your life becomes easier because you only plan for a single monthly payment. More importantly, you enjoy a lower interest rate because you are paying a single loan.

With a debt consolidation loan, you can also improve your credit rating because every loan repayment you make is recorded by the credit bureaus which will gradually improve your credit score. In essence, debt consolidation is an innovative way of getting back on your feet if you are struggling to juggle multiple debts.

Finding the Best Debt Consolidation Company 

While there are so many debt consolidation firms out there you have to choose wisely. There have been many complaints about debt consolidation scams with many companies luring unsuspecting customers into debt settlement and management. If you are looking for a reliable debt consolidation company consider the following factors:

  1. Ask for References

You should talk to your friends and family before using any financial institution. With the increase in consumer debt, most people are using debt consolidation companies to alleviate the debt burden and you will thus find someone out there who has used one of these companies. You should also go online and check comparison websites to assess the reliability of different companies. Most customers will review the services they have used and it is easy to find such information online. Testimonials are also important when you are looking for a reliable lender.

  1. Try the Better Business Bureau (BBB)

When creating a shortlist of the debt consolidation companies make sure you check their name on the BBB website. A good lender should be accredited by the BBB because the program rates service providers based on the information they get from consumers. If the company is not even listed keep looking. BBB rates these companies depending on customer reviews which makes this a reliable yardstick when choosing a debt consolidation service.

  1. Registration

Before using any debt consolidation program, check whether they are registered with the National Foundation of Credit Counseling (NFCC) or The Association of Independent Consumer Credit Counseling Agencies (AICCA). While it is not mandatory to register with these agencies, a reputable lender will go to such lengths to maintain high standards of service. By registering with these agencies the company is guided by a strict code of ethics and customers are better protected. Many debt programs have been delisted by these agencies due to consumer complaints and it is thus important to confirm that your debt consolidation company is registered.

  1. Customer Service

Use a company that guarantees prompt resolution to your issues. During the initial consultations, assess the quality of customer services as this helps you understand the quality of service you are going to expect in future. You can also try the company’s website to confirm what communication channels are provided. Look for live chat, email, social media networks and phone number, and try using them to see how reliable they are.

  1. Company Website

A good debt consolidation service should have a resourceful website where you can learn about their services. Any business that does not have an online presence in modern times is not credible enough. A business website is a sign of a serious debt consolidation service. What’s more, such a platform not only allows for easier interaction with customers but also provides important information about the services a customer should expect.

  1. Type of Services

It is important to confirm exactly what service you are getting to avoid falling for a scam. You should talk to a customer agent to confirm that the company is offering you a loan and not any other service. While many companies advertise themselves as debt consolidation services, they end up introducing debt negotiations, which is not the most effective way to manage your debts. With debt consolidation remember you are bundling all your small loans into a single package which basically means you are buying a new loan. With debt negotiation these companies promise to negotiate with your creditors to get lower rates or other favorable terms.

  1. Use a Non-profit Organization

There are different types of loan providers out there but if you want favorable terms it is advisable to try a non-profit organization. Such a company not only consolidates your loans but also gives advice on how to get out of your financial rut. They also offer better repayment rates to help you enjoy the benefits of debt consolidation.

If you are in over your head in debt, consolidation is the best option. There are many reputable debt consolidation companies out there and they are ready to offer good terms. With a single loan payment you are able to handle your finances much more easily. This is one of the best financial decisions you can make as it helps you track your finances much more easily.