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There are times in life where we are backed into a corner financially and the only way out is to get a loan. Just make sure that you manage and plan your repayments correctly or you’ll end up in a loop, taking out loans to pay for your existing loans and what not.
But if you ever find yourself in that situation, there is still an option for you to get out, and it’s called a debt consolidation loan.
What is a Debt Consolidation Loan?
Debt consolidation loan is a kind of loan that is used to pay off all your other loans, consolidating and simplifying payment by putting it into a single account by a single lender.
Depending on how great your credit score is, the rates are always lower than all your other loans combined, saving you money and making repayments more manageable.
Below are the most debts that consolidation loans cover.
What are the advantages of a debt consolidation loan?
Debt consolidation can be a good idea when you have many existing loans. If done right, debt consolidation loans can help you save money, time, and even your credit score. Let me expand on those things.
Interest savings – When having multiple debts with high percentage rates, you can avoid them all if you get a debt consolidation loan with a lower rate. For example, if you have a couple of credit card balances with APR’s of 16.24 and 24 percent, if you put it in a consolidation loan which has only 15% APR, that could save you a lot.
Lower Monthly Payments – A debt consolidation loan will help you avoid missing payments and defaulting on your loans. You can opt for a longer payment term, although you might be subjected to a higher fee. Having to not worry about multiple debts at a time is a life saver.
Improved Credit Score – You’ll be converting all your existing debts that can potentially damage your credit score into a single manageable one.
How to Get a Debt Consolidation Loan?
Choosing the right lender – There are many lenders or organizations that offer debt consolidation loans. There are even a lot online. Do a thorough research, compare their rates so you can get the best out of it. And most importantly, make sure that you’re eligible for the loan.
Apply – The first thing in any loan applications is the preapproval. Lenders or organizations will likely conduct a soft inquiry on your credit, in order for them to come up with the rates.
Loan Terms – Your terms are how much are you borrowing, how long the payment term is.
Finalize your application and wait for approval – Once presented with the paperwork, read the fine print thoroughly. Make sure the terms you’ve discussed with your lender are what is written on the document. It will take a few days, but once approved, you’ll be able to get your cash.
Repay – This depends on your lender, but once you’ve received the cash, the repayment period has started.
Thinking of best way to settle your loan could be stressful especially when you have bad credit. But there are options to consolidate your debts but it could cost you more. It’s actually better if you have plans ahead before you get a loan so that you won’t suffer repaying interests and the terms of your loan.
Consolidating your debts may also need a good credit score but there are other ways to consolidate your debts when you have bad credit.
Consolidating your loan could make you pay higher and longer period. The terms could range from 24 to 60 months. So the longer you pay, the lower your monthly payments will be but expect a higher interest rate
You can try the peer-to-peer (P2P) lending, this is a good option for those who have bad credit. You can borrow money from P2P loans directly to an individual and they will personally evaluate your loan application to decide if whether they will lend you some money or not. One of the most popular peer-to-peer loans is the LendingClub.com and they will give you lots of option to choose from.
Home equity loans and cash out refinances could be another option to get a loan. But, in order for you to get a loan you have to set your home equity as collateral.
Transferring of balances to a new credit is another way to consolidate your debts. But this will cost you more since you have a bad credit. Doing this can cause you to pay higher interest rate but this will help you pay off your bills and focus on other debts. But for those who have good credit they can easily transfer balances to a zero percent credit card.
However, you have to be extra careful when you’re shopping for options to consolidate your loan. Because there are people who will take advantage of you especially when they see your desperation to pay off your debts easier and could be a debt consolidation scam.
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