Consolidating loans can be a good option for those who find themselves suffocating with debt. When you consolidate loans, you simply apply for a loan from a debt consolidation company or a bank and the new lender pays off your old debts. You will then be in debt to the new lender instead of the original lenders. Although this really is just moving your debt from one place to another, debt consolidation has many benefits. This type of program can cut your payments in half, lower your interest rates, and get you out of a really bad situation. So how can you get started?
First you need to get a copy of your FICO score and your credit report. Getting any type of loan will depend on these stats. When you receive it, it’s equally important that you check it over and make sure it’s accurate. Sometimes old debts will still remain on your credit report or there can be other inaccuracies which can prevent you from getting a loan. If your FICO score is high, you will most likely be eligible for a debt consolidation loan that has a reasonable interest rate. If your FICO score is too low, you may find it harder to get this type of loan. However, do not despair as you may still be able to get a consolidation loan. The only catch is it will most likely have a higher interest rate.
Your next step will be to research many different debt consolidation companies and banks to find out who can give you the best loan, with the best interest rate. Make sure that you get a quote from each company and that it’s in writing, so that you can compare them side-by-side. Having it in writing will also ensure that you’re given a loan at the rate you were quoted. When you are comparing loans, don’t just choose the loan with the lowest monthly payment. This is tempting, but the loan could have several other clauses or conditions that you’re not comfortable with. Read all the quotes carefully to make sure you’re getting the best deal.
The next step is to apply for a consolidation loan. There are two different types of loans that you will be able to choose from: secured and unsecured loans. Secured loans are loans such as second mortgages, home equity loans, or secured lines of credit. These types of loans are generally given to people with good credit and who have assets that can be used against the loan should they default on payment. These can be risky because you could end up losing valuable assets, such as your home. Unsecured loans are much safer because you don’t stand to lose anything if you fall behind on payments. However, if you don’t have good credit the interest rates will be too high, and you’ll end up paying much more.
Once you’ve found a company to handle your loan and the papers have been drawn up, read your contract extremely carefully. Ask any questions and if you need to, take the contract to a lawyer or someone more knowledgeable about it before you sign them. Consolidation loans are a big deal. If you don’t take the time to understand it beforehand, it could cost you thousands of dollars or even your house!
Next you will finalize the loan and start paying off your debt! Make sure that all of the paperwork you need is handed in and that the rate you’re getting is the rate you were quoted. If not, find out why. This is a pretty straightforward step and only requires some legwork to get it done. Once you have your loan, start paying it off right away so you don’t get into this situation again!