6 Things to Consider Before Applying for Debt Consolidation

For a great many people who happen to be in financial difficulty, debt consolidation might seem to make perfect sense.

If you happen to be one of these people, you will probably be familiar with the claims that debt consolidation is a fast and easy way to get out of debt.

However, it could be the case that you end up in deeper trouble than ever, possibly even losing your home in the process. It is not without good reason that debt consolidation has developed a pretty bad reputation in recent years.

Alleviating Your Financial Problems

In this article we will be exploring how debt consolidation could work for you. Naturally, we will also be exploring some of the pitfalls. Listed below are 8 points that, if carefully heeded, might just be of help in finding a good debt consolidation loan and thereby alleviating your financial problems:

1. Credit Report

If your credit rating has actually improved since taking out the loans, you might well be able to consolidate your loans at a much lower rate. It is for this very reason that you should start by getting your credit report. Study your credit report carefully and keep an eye out for any inaccuracies that might damage your score and prevent you from getting a decent rate.

2. Get Credit Counselling

A reputable credit counselling agency would be able to provide helpful advice, often free or at minimal cost. A good agency would assist you with preparing a budget as a means of getting your finances under control. However, it is extremely important that you exercise caution in this endeavour, as some less than scrupulous credit counselling agencies might attempt to take advantage of your situation.

3. Pay Off Your Debt Quickly

When consolidating your debts, try to pay off the loan as quickly as possible. Reduced monthly payments could merely be the result of your debt being spread over a lengthy period of time, meaning that it could end up costing you far more in the long run. If at all possible, try to get your monthly repayments as high as you are reasonably able to afford in order to clear the debt quickly.

4. Getting the Right Loan

When applying for a debt consolidation loan, be sure that it is the right one for you. You could opt for a home equity loan as a way of keeping the interest rate down, although you should seek advice from your mortgage broker before going down this particular path. Any default on repayment could potentially lead to the loss of your home. A less risky option would be to take out an unsecured loan, although you would be required to pay a significantly higher interest rate.

5. Get Quotes

Before committing yourself to a particular credit consolidation loan do a bit of shopping around first in order to compare interest rates. What you will probably discover is that your own bank or credit union would be prepared to offer the best deals.

6. Read the Loan Contract

This might sound obvious but it is vital that you fully understand every single line of your loan contract before signing on the dotted line. The slightest missed detail could possibly end up costing you a fortune or even your home.

Summary

If you happen to be in serious difficulty, consolidating your credit card debts and high interest loans might seem to make sense. Unfortunately, a great many people end up worse off. By exercising caution and taking stock of your situation, it might be possible to make debt consolidation work for you.

Author: Economic Voice Staff