Many people apply for a debt consolidation loan to clear their debts. Debt consolidation has advantages and disadvantages. You need to understand the process before you choose this option. The way it works is that you borrow enough money to pay off all your outstanding debts. The monthly payment on the loan is usually lower when compared to the previous payments on your old debt. The biggest benefit of consolidating your debts is that it will help you better manage your debts. Below are tips to help you get a debt consolidation loan.
Calculate your total debt
Gather all your credit cards and total up your debts. Adding up all the debts will enable you to know the amount of money you will need to borrow to clear them. Having a list of all the debts you have on each credit card helps ensure that you do not leave out any.
Decide on the debts you want to consolidate
Decide which debts you want to consolidate. Choose the debts with the highest interest rates as they are what cause your debt to accumulate the fastest. You may need to have a certain balance to qualify for consolidation if you are going to use a debt management company.
Decide on the collateral to use
Choose what you will use as collateral to get the consolidation loan. Your home, vehicle or property may be used as collateral. Call an appraiser or tax assessor to estimate the value of what you have chosen as collateral. If you do not own any assets, you might have to consider using a debt consolidation company.
Provide proof of income
Most debt consolidation companies will not work with you if you can’t provide proof of a stable income. Some lenders may ask you to provide a copy of your budget or monthly expenses to assist them in determining the type of payment you can afford.
Check the interest rates
Find out the interest rate charged on your loans because they will need to be cleared off. Contact your creditors to find out how much interest they are charging on your accounts. This will help you get the actual balances so when you pay them off, you will not have any balances left on your old debt.
Find a lender
Use the Internet to search for lenders because there are a number to choose from in terms of the services they offer. Look in the yellow pages or ask for referrals from people who have gone through the process. Make sure a potential lender is reputable before you select it. Once you have found a lender, you need to convince it to give you the loan, which means showing them that you are worth the risk. Call the lender to see if there are any other criteria needed to qualify for the loan. Your income may determine which debt consolidation lender you will choose.
Request a loan application form
Make sure you read all the terms and conditions before you fill out the form. Be honest about yourself and your finances on the form because it will determine if you get the loan or not. Once you have submitted the form, you will need to wait for the lender to make its decision.
Debt consolidation is not always the best option. As a matter of fact, many experts argue that debt consolidation only moves your debts from one lender to another. The next best and indeed better alternative is debt settlement. With debt settlement, you will only pay a small percentage of what you owe.