Four important things to consider before you say yes to a debt consolidation loan
Apr 18, 2019 19:50
In the past few years, debt consolidation is has become a buzz! The financial downtime of the economy has made the banks slightly more rigid with the risk models. Hence, earlier it was practically difficult to seek a bank loan. And the only plausible method to procure a loan was via the HELOC (Home Equity Line of Credit).
Recently several online lenders have come up to aid people who in need of a loan. And that has been changing the scenario of customers borrowing money. The majority of lenders come with an online application where you can skip the branch visits. You can directly get the money transferred to your account within a single business day. Furthermore, you also have the chance to sign the contracts online. And when you have access to all these advantages, it is essential to have a clear understanding you the way debt consolidation works. For this, you can always refer to the debt consolidation reviews that are available online.
However, that isn’t all. You also need to be aware of the very typical traps that come by your way, while you are planning to consolidate the debt. Discussed below are some essential pointers you need to know.
•Always understand where the problem stems from
Debt consolidation is the perfect way for paying off the credit card of high-interest rates. In the process, it will hugely add to your savings. The primary advantages of getting your debts consolidated are by opting in for the single month repayments with one fixed interest. You need to know that the moment you repay the credit card using a personal loan, there will be zero balance left for you. It refers to a single thing. That is you get access to the credit limits which your credit card can have.
It is essential that you stay disciplined not to incur any debt once it’s repaid. You can instead take some time and find out the ways that got you in debt. There can be several reasons for this. Do you attribute this to your poor management skills? Did you spend a lot on travel, groceries, travel, beverages, social gatherings and the like? Regardless, of the cause, it is essential to get to the root cause of the issue before you consider a debt consolidation loan.
•Are you consolidating the incorrect debts?
The moment you have applied for your debt consolidation loan program, your gut feeling might suggest you take an increased amount that might get sanctioned. However, this decision might go against you in the future. You need to get practical. And for that start by knowing your interest rate that is applicable for each account.
It probably might seem right to you to get all your accounts consolidated. However, it will make you pay more in the long-run. The ease when you have to make just a single payment is the best plan that you can opt for. But you need to ensure that you consolidate only the high-interest rate accounts. You should take the amount which is required to pay the excess rates in credit cards. And this will help you with a reduced monthly payment. Your interest will also be very less.
•Ensure that all your lenders pull a soft query
The last thing to do would be to ask every single lender for a loan. There are a few lenders who will place a soft inquiry and others a hard inquiry. The principal difference is that when it's a soft inquiry, it will not impact your credit score so much. On the other hand, a hard question will affect the credit score.
One of the best ways to attempt this is by opting in for the loan comparison engines, such as LendingTree and many more. When you make the most of these tools, you get to see several live offers from every lender. The best thing of using such tools is that you stand a chance to compare the payments and rates and also know what works aptly for you.
•Read your review contract attentively
It is one of the essential steps you need to consider before you opt-in for a debt consolidation loan. Make sure to assess the loan terms. Few lenders put in a company fee which gets extracted from the loan amount you requested. There are others who can place a pre-payment penalty charge as well.
Also, make sure to analyze the interest rate very carefully. Other things to consider are the loan length and the overall repayment. After that, you should estimate whether the amount fits perfectly with the monthly budget. Few other things that you can keep an eye for are the loan contact to check out the policies that are applicable for late expenses. Are these policies lenient? And is there a chance that late fees under certain circumstances might be forgiven?
Last but not least, always make it a point to check whether the policy will change the due date. You need to consider that life can be uncertain at times. And that can impact your repaying capacity on particular dates. Hence, it’s a smart call to get some flexibility so that nothing comes in between the loan repayment.
If you can exercise some discipline and financial planning you can benefit from this process. A debt consolidation loan is a fantastic way to get a monthly debt repayment schedule. And by doing this, you will be able to become debt-free within a specific time frame. However, it is essential to use your common sense when you are applying for the loan. Try and research on the moneylender or the organization before you sign up for a debt consolidation program. It will enable you to decide if you are adding to your saving while repaying or paying more. Also, get in touch with a credit counselor who can help you better in determining the best loan choices and repayment options.
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