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.

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.

6 Risks When Using Debt Consolidation Loans For Credit Card Debt

man holding cashOne of the time-tested options for debt relief is debt consolidation loans. In fact, a consumer who knows nothing about the usual debt relief options will immediately assume that getting a loan to pay off the other credit accounts can help them solve the problem. Without knowledge of any of the debt consolidation programs, this is an option that can make a lot of sense to anyone.

The idea of this debt relief program is to combine the multiple high interest credit of the consumer into one loan. They will borrow an amount that is significant enough to pay for all the other debts that you owe. Once they have the loan, they can pay off the debts and concentrate on paying just one debt.

This seems so effective and appealing that a lot of people who are deep in credit card debt often prefer to use this debt solution. With the credit and debit purchases increasing over the years, it is apparent that consumers have yet to break free from high interest credit card debts.

According to the data from The Nilson Report that was published on MarketWatch.com, card purchases (credit, debit and prepaid) amounted to $4.077 trillion in 2013. This is an increase of 7.9% in 2012. Although the most popular method of payment are through debit cards, credit cards were still used on $1.079 trillion worth of purchases. And that just for Visa credit cards. The same report revealed that there are 1.14 billion general purpose cards in circulation as of 2013. The gives credit card debt a lot of room to grow.

Thankfully, people who are struggling with too much credit card debts have several options to get out of it. As discussed, debt consolidation loans is one of them. But before you are choose this as your way out of debt, or any other debt solution for that matter, you should explore the risks involved.

6 pitfalls to avoid when consolidating credit card debt through loans

The average American, according to the data compiled by StatisticBrain.com owns 3.5 cards. If you maxed out all of these, it may be confusing to pay them off all at once. With the average interest rate of 13% to 15%, this type of debt can quickly grow your debt amount. This is where debt consolidation loans can help because it encourages you to get a low interest loan to pay off the high interest ones.

While it is a legitimate and effective debt solution, debt consolidation loans does have a lot of pitfalls. When using this option, you need to be wary of these 6 risks.

  • Applying for a high interest personal loan. If you do not have the right qualifications, you could end up being imposed with a high interest on your loan. The qualifications are usually a good credit score. This will assure the lender that you are a responsible credit holder and will not prompt them to give you a high interest on the loan for their own protection. Of course, if you have a collateral, like a home, you can get a secured loan – which is generally given with a low interest.

  • Using the approved loan amount in something else. Having all that money in your hands can be quite tempting. This is especially true if you have been depriving yourself just so you can pay off your high interest credit card debts. You need to prepare yourself for this temptation and commit to use it only to pay off your multiple debts as intended. Otherwise, you could end up with more debt than when you started.

  • Assuming that you have paid off your debts completely. Debt consolidation loans are tricky in the sense that they will make you feel like you already paid off your debts. The truth is, you just shifted them to a loan that has a lower interest. You have not paid it off yet.

  • Racking up credit card debt again. Another pitfall that you have to be careful with is racking up another batch of credit card debt. When you paid off your cards with the loan amount, that zero balance can be very tempting to use. Do not give in. If you continue to use your card, that could only grow your total debt because your old debt is still being paid off through your loan payments.

  • Getting frustrated because of the seemingly slow progress towards debt relief. With debt consolidation loans, you are restructuring your debts so that it is under one lender and you have a lower monthly payment. This lower contribution every month is usually because of a longer payment period. You have to expect that the slow progress is necessary to make your monthly payment lower. Try not to be too impatient and just stick to the plan.

  • Failing to pay for the loan. Obviously, this debt relief program will fail if you do not pay off the loan. So make sure that you have payment plan in place that will eliminate this one huge debt once and for all. Not only that, you have to make sure that your job is stable enough that it can support your debt payments for a long time.

Although these pitfalls can end up making debt consolidation loans a risk, it is still better than paying the minimum of your credit cards. It will still get you out of debt a lot faster.

When should you use loans to deal with your debt?

Now that you know the pitfalls,let us discuss the signs that will tell you that debt consolidation loans is a good idea. Here are some of the most important ones.

If you do not mind paying for your debt over a longer time.

In most cases, the low monthly contribution in t debt relief option means you have stretched your balance over a longer period. If you can be patient enough and you know that you can keep yourself from getting frustrated, then this is a debt relief program that you can commit to until the end.

If you have a steady income.

As we have just mentioned how this debt relief option involves a longer payment period. That means you have to support this with a steady income. Besides, one of the requirements of a loan is a stable job so make sure you have this qualification before you pursue this debt solution.

If your income can afford to pay for all your debts.

In case you have a lower income now and you know that you cannot pay for all your debts, you may want to search for another alternative. Debt settlement will help you get debt reduction. Debt consolidation loans will still require you to get all of your balance paid off.

If you can qualify for a low interest loan.

One of the pitfalls of this debt relief program is ending up with a high interest rate on the loan. If you do not have a collateral or a credit score, not even the best debt consolidation loan program can help you save money on your debt.

If you have a debt payment plan and can commit to it.

This is a DIY debt solution and that means you need to make sure that you can commit to this program. Have the right tools like a debt payment plan to help you stay true to your debt relief option. Otherwise, you might find yourself falling back into debt once more.

If you can discipline yourself to control your spending.

Lastly, you may want to ensure that you have the discipline to control your spending habits. This is easier said than done because Americans are known to be high credit card spenders. According to an article published on CNBC.com, the average American consumer takes on too much credit obligations. This is either to buy a new home, a car, fund an education or to purchase unnecessary things through credit cards. This is a habit that people using debt consolidation loans will have to deal with.

Make sure that you consider your other debt relief options carefully before finalizing your decision to use debt consolidation loans. If you make a mistakes, it could cost you that much needed debt freedom.

How To Use Loans To Get You Out Of Trouble

problematic businessmanDid you know that you can actually use loans to get you out of a financial crisis? Some people will think that putting yourself in debt is bad but when you are in a tight situation, sometimes that is the only way out. We all want to believe that we can live without putting ourselves in debt but there are cases wherein it cannot be avoided. Life is a gamble and this is one of the decisions that you will find yourself weighing all the risks and the gains.

There are some financial decisions that you should not make and yet, there are those that lie on the gray areas of reasoning. Debt is a perfect example of the latter.

Different situations wherein a financial assistance can help

There are instances wherein you will find that debt can be good for you. However, you need to weigh your options very carefully and you need to think this decision through. To help you out, here are some of the situations that we believe justifies the act of getting a loan as a way out.

When you need to make your debt payments easier

The number one reason is debt. Believe it or not, some people are having a difficult time with their debt, not because they cannot afford it, but because there are just too many of them to monitor. This is when debt consolidation loan becomes a great option for debt relief. This debt solution requires you to get a loan that you will use to pay off your multiple credit obligations. This will help you combine your credit obligations into a simple payment plan. Instead of paying various creditors, you get to focus on just one lender. This ease will help you pay down your debts more efficiently and effectively.

When you want to solve your high interest debts

Another reason why you want to get a loan is to solve the high interest debts that you owe. This is especially true if you have mostly credit card debts. A personal loan usually has a lower interest rate – even more so when you get a secured loan. Instead of wasting your money on the interest, you get to put more of it in your principal debt. This is a great way for you to maximize your limited resources.

When you have to save your business

A business is always plagued with debt and when you are getting financial assistance for your company, there is hardly anything wrong with it. As long as you know that you money will bear fruit, getting loans to help expand your business is not really viewed as debt, but as an opportunity for growth and more profits. In case your existing business credit also needs to be restructured, loans can also be a means for you to get the funding to get the company out of a financial crisis.

When you want to save your home

If your home is in danger, you can refinance the current equity that you have on it and use it to help lower the interest rate on your current mortgage. You can also get a longer term so that your monthly payments will not be as high as before. These are some of the things that will help you save your home from foreclosure in case you do not have enough money to pay the current payment plan.

Reminders when getting a loan

While it is evident that getting a loan can be beneficial in pulling you out of a tight spot, there are some things that you need to consider to make sure that it really is beneficial. If you approach this solution the wrong way, you could end up being in more debt than what you can handle.

Here are some tips that you can use to effectively use loans as a solution to your financial troubles.

  • Know your choices. When you have decided that you need a loan to help you out of a problem, make sure that you will be selecting the right one. There are many types of loans and they vary in terms and security. Here is a video from eHow that discusses the various loans that you can avail depending on the type of security on the agreement.

  • Read the fine prints. In case you have selected the loan that you will use, make sure that you read all the fine prints on the agreement. Not only that, you have to understand every word. In case there is something that you cannot understand, ask the lender. Check if there are prepayment penalties and other charges that you have to avoid to keep your debt from increasing unnecessarily.

  • Make sure you can pay it off. Before you even apply for a loan, you have to calculate if you can really afford to get one. There are online loan calculators that you can use to help you compute if you can manage the new payment from this new loan. You can use the one from Bankrate.com or Mlcalc.com.

The analysis that you will make before making the loan is very important. Ensure that you have the funds available to pay it off. Most of the time, people who are successful at this solution has a concrete plan to pay the new loan. If you think that your situation is only temporary and that your financial condition will get better in time, a loan can be an effective solution. But if you know that it will not improve for a long time, then look for another way to get out of your financial predicament.