How to Consolidate ALL your Debt into a Single Low-interest Monthly Instalment
First of all, let’s take a look at what exactly it means when you consolidate your debt.
To consolidate your debt means that you take all your different debts and you merge them together into one large loan. Simply put – you use one large loan to pay off your smaller different debts.
Debt consolidation is under many circumstances the best answer for people to become debt-free.
In fact, it makes perfect sense, to consolidate all that credit card debt and high-interest rate loans into a single loan, which will give you a lower interest rate and more manageable payments every month. If used wisely and correctly, debt consolidation could be very helpful.
However, if it is misused and mistakes are made consolidation can be dangerous and even lead up to more debt.
Secured & Unsecured Debt Consolidation
There are two types of debt consolidation loans: secured & unsecured.
Secured loans are when the loan is secured with an asset – such as your house or car. There is of course a big risk – if you fail to make your payments, that asset can be claimed as payment.
An unsecured loan is the safer choice for many. It is not secured with an asset and an example of an unsecured loan is a personal loan.
Let’s take a quick look at some tips that might be useful when you are considering debt consolidation.
Check Your Credit Record
If your credit score is good, you may easily be able to consolidate a loan at a lower interest rate.
It is a fact that with any loan that you apply for, the approval of it will be based largely on your credit score. It is a good idea to go through your credit report and correct any errors there might be.
Errors could prevent you from qualifying for a debt consolidation loan.
The ‘Right’ Time to Consolidate
For many people who are in a difficult financial situation and maybe even on the verge of bankruptcy, getting a consolidating loan makes perfect sense.
If for some reason you are not able to secure a loan with a lower interest rate, you might want to consider something else besides debt consolidation.
Debt consolidation makes sense when;
- You can easily manage to afford the new payment and
- When you end up paying less interest (than you were before the loan)
Consider All Your Options
Perhaps all you need to do is to prioritize your debt.
Do you really need to consolidate your debt or are there other options?
In other words, you should try and pay the maximum amount you can on debt that has a high-interest rate, and the minimum amount on your other smaller debts.
This way you will be able to lower your monthly charges and even save some money.
You can also consider getting help from professionals – for example, debt counselling. They will offer you professional advice on how to budget and manage your debt effectively.
Credit Card with Low Interest
This will help you save money on monthly finance charges.
If you have good credit, you can definitely consider negotiating for a credit card with a low-interest rate. By doing this you will be able to transfer all of your high-interest debt to a single card.
Compare Lenders & Quotes
It is always a good idea to get quotes from different lenders.
Thinking about getting an unsecured personal loan, to consolidate your debt?
Well, then you might want to visit your local bank or credit union. You can compare the terms and interest rates carefully.
Remember to always ask about the credit requirements.
Avoid Loan Mistakes
The best strategy would be to negotiate.
The one and probably the biggest mistake you should avoid at all costs are to accept a loan that does not have an advantage for you.
Negotiate for a lower interest rate, smaller monthly payments etc. It is not going to help you at all if you consolidate your debt, but keep on struggling with it.
Always Read the Fine-print
If you have any questions – ask.
Read it very carefully, and then read it again to make sure you didn’t miss anything important.
Also, make sure that you completely understand the answers.
It might even be helpful to get another person’s opinion (someone you trust of course); your financial future is depending in that piece of paper.
Consolidation vs Debt Management Program
Debt consolidation is one big loan that pays off your other loans.
Just remember that when you consolidate a loan, you now owe that money to the lender or bank. You will also get a lower interest rate.
Debt Management will also reduce your debt, but it works a little different than a consolidation loan. This is where you negotiate with a debt management agency or credit counselling agency. They generally act as the middleman. They will negotiate with your creditors on your behalf.
You then pay them the agreed amount, and they will then pay your creditors. In the end, it comes down to you and what your financial needs are.
Remember debt consolidation is not for everyone. Make sure of everything before you apply for a loan – secured or unsecured.