Many people are running to debt consolidation so as to manage their financial problems. Although it is viable debt management solution, you will only feel the benefits of the process if you change your lifestyle and your spending habits before and after debt consolidation.
Putting together all your old debts into one then repaying a personal loan is great because:
- You will have one loan to repay monthly.
- You will not forget to repay some debts
- You will have a lowered interest rate,
- You will have to deal with a fixed rate loan rather than the many variable loans,
- You can get the no balance transfers that give you a chance to save big.
However, even with these advantages, you have to be cautious. Before consolidating loans, know these:
- Shop around
Even with debt consolidation made easy, the debt consolidation companies around have variable plans and you will have different plans afforded to you at every company. Before agreeing to a plan, take your time and analyze the rates given. Do your own math and ensure that the plan isn’t expensive in the end. There should also be no hidden fees and you should be given an opportunity to negotiate the rates before signing the loan documents.
- How is your credit score?
Do you know what your credit score is? To qualify for that personal debt consolidated loan, your finances have to be looked at. Your credit score is determined by your payment history and it determines how much money can be extended to you as a loan and the financial charges to that account.
If you have a poor or a low credit score, you will get the loan but at a higher interest rate. You may also have to provide collateral for the loan. Collateral can be in form of your house, your 401k loan, or your life insurance. You should also shop around. Get multiple quotes and go for the best available option.
- How deep in debt are you?
When you are in too much debt as a result of the high interest rates and late fees charged on your account, your finances will be in a deplorable state and even when you finally get a personal loan through debt consolidation, you have to make many adjustments.
If things are dire in your bank, you should consider finding a certified credit counsellor for help. The professional will help in evaluating your debts and help you develop a cash-based budget that will incorporate repayment plans. Alternatives like debt settlement will be suggested to help repay your debts. In extreme cases, you will be advised to file bankruptcy under chapter 7 or 13.
- Which type of personal loan are you getting?
Before signing anything, you must differentiate a personal loan from a personal line of credit. The latter works like a credit card and you can draw against it when necessary. The personal loan on the other hand is a one-off option repayable according to a structured repayment schedule. The personal loan is therefore the best alternative since the personal line of credit will only lead you to more debt.
In conclusion, getting a personal loan to consolidate your debts is an effective strategy that will make it easier for you to manage your finances. It is recommended that you only go into debt consolidation when you are certain that you want to get rid of your debts permanently and to change your lifestyle.
Author Bio
Michael Simmons is a certified credit counsellor. He runs a blog on debt and credit management. Check it out for debt consolidation made easy tips and procedures.
