How To Get A Debt Consolidation Loan In 5 Steps
With a debt consolidation loan, one bigger loan covering numerous other obligations is obtained along with one monthly payment. This will enable you to handle your debts a lot simpler and less expensively. Taking a debt consolidation loan can help you if you have high-interest debt on many credit cards or loans so that your monthly payment and the period you spend paying off your debt are shortened. Following five simple procedures will help the reader to clearly grasp how to get a debt consolidation loan.
Step 1: Divide Your Debts by the Number of Months
First, set up a table including all of your present debt with monthly, balance payments and interest rates. This includes among other unsecured obligations you want to combine credit card debt, personal loans, and medical costs. Included should not be secured debt such mortgages or auto loans. Summing the overall minimum monthly payback would also help one to understand their current minimum monthly pay-back. Loan payment for debt consolidation should thus be less than this amount.
Step 2: See your credit rating
Most of the lenders will usually take your credit score and report into account before sanctioning your consolidation loan. Doing some background study on credit scores and reports helps you determine your loan application chances. Every year via AnnualCreditReport. Com, you are given one free credit report from each of the three agencies. You may get your FICO credit scores at myFICO. com or another approved source even though you will have to pay for them. Hence, you should have a credit score of 620 or higher if you want a debt consolidation loan with reasonable interest rates. Should your score be lower, it would be advisable to concentrate on raising your credit score before loan application.
Step 3: Research Lenders
Debt consolidation loans can be provided by several lenders such as banks, credit unions, online lenders, and debt management firms. Explore the choices, and consider the anticipated interest rates, loan period, monthly payments, and costs. Some of them are the minimum credit score, maximum loan amount, and debt-to-income ratio. Take your time and type keywords that refer to your credit standing into the search engine. Non-credit-based filtering instruments can be very helpful in reducing the field of choices without performing a tough credit check.
Step 4: Apply for Your New Loan
After choosing the right lender and loan type, fill out the debt consolidation loan application. Expect to disclose your identity and job history, income, debts, and assets, among other things. Be clear on all charges and remember to read any contracts before you sign them. Lenders who request fees before approving your loan should be avoided. Most of the lenders have online applications and this makes this process easy and comfortable.
Step 5: Utilize the Funds to clear Debts
Once granted, your lender will disburse the new loan amount to your creditors to clear the balances as per your permission. Payoff orders should be used strategically. The first step should be to pay the least amount owed so that the number of monthly payments can be reduced quickly. Then continue to pay the remaining money in high APR debts to get the most savings for the interest charges. It is also important to shut down the credit card accounts that have been paid off or to delete them. Do not run balances back up on paid-off accounts or this would defeat the purpose of consolidating the accounts.
Benefits of Debt Consolidation
When done correctly, a debt consolidation loan can offer multiple benefits including
Reduced monthly installments through elongation of the term of repayment and reduction of the interest rate. Reduce repayment period with single loan amortization schedule A single fixed monthly bill instead of many different ones Support the organization and better management of finances Cut the interest costs based on the new loan rate More convenient to pay a single consistent amount to cater for the meals and save more when planning for the amount to set aside for meals. May work to gradually boost a bad credit rating in the long run Some of the lenders also provide extra services such as credit restoration.
However, it is important to note that the following step-by-step guide should be followed when getting a debt consolidation loan to get the right loan and manage the funds properly. Reducing the number of high-interest debts can be one smart decision one can make toward the journey of becoming debt-free.
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