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One of the main reasons why a borrower applies for a debt consolidation loan is to turn high-interest credit card debts, personal loans, and other advances into a single, lower-interest debt. It can significantly reduce the overall debt especially when you’ve chosen the right lender and also, it can help you manage your debts quicker and easier.
When consolidating a loan, the lender may pay all the existing debts on your behalf or you may be given the loan and do the repayment instead. Whatever the procedure is, the first thing you should ask yourself is if debt consolidation loans are really a good idea?
When a Debt Consolidation is Good?
Basically, a debt consolidation loan helps you manage your existing debts easily by combining them into one single account; however, this is not the perfect solution all the time unless:
You have a good or excellent credit rating and you’re eligible to get a low-interest debt consolidation loan
The overall amount of your debt should not be over 30-40% of your gross income
Your income is enough to cover your loan repayments
You have a concrete financial plan that will help you avoid any form of debt again
When a Debt Consolidation is Bad?
Debt consolidation loans are almost one of the best options when you want to get out of debts; however, it’s not the solution for all debt-related problems. It’s not a good solution when you’re trying to address debts due to overspending habits nor the answer when you know you can’t handle another financial obligation anymore, not even if the payments were reduced.
If you’re clueless whether this kind of loan is good for your situation or not, it’s best to talk to an expert instead. Otherwise, you may rely on other ways to settle multiple loans such as looking for an extra income, selling your things, making extra payments, or refinancing your credits.
Are you having trouble in managing your income, debts, and expenses? It is so hard to think every single time on how you should pay all of that right? Well, maybe you’ve come to think of a way and would like to consolidate all your debts but how? Let’s define first the debt consolidation loan.
So what is a debt consolidation loan? It is a way to merge all your debts into single payment where you could pay it at a lower interest rate. There are various types on how you can consolidate your debts so better make some research first and compare the deals before you get excited to consolidate your debts. Most likely, debt consolidation loans are often offered by credit unions and banks and you may pay it on a lower interest rate but could also extend the terms you have to repay the loan. You can also consolidate your debts through credit card or personal loan. But here are some ideas on how you could start consolidating your debts.
First, try to list down all your debts and compute the interest for each of it to see how much you’re actually paying every month. Then know your credit report and credit score, you can get a free copy of this once a year. Lenders require you to have a good credit score for you to be able to consolidate your loans so if you have poor credit score it could be a problem for you to consolidate your debts. Next, search for a good deal and try to evaluate the interest rates and the terms you have to repay it. If you have all the requirements needed you can now go to your lender and fill up the application form. Usually they will require you a proof of income, your identification, and your employment status so that they will know if you have the capability to repay them. Then, if you got approved you will receive the amount of your debt consolidation loan. Use it to pay your smaller loans and then make a way to repay your debt consolidation loan.
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