Avoid financial collapse. Debt consolidation is way out of a dead-end situation.
Understanding Debt Consolidation
Debt consolidation is the pay-off procedure of existing consumer loans and other financial liabilities by applying for a single new consolidated loan. In debt consolidation, all of the existing debts are merged into one large sum of money, enabling the borrower to pay it off through borrower-friendly pay-off rules, lower interest rates, and smaller monthly installments to clear the debt in a determined duration.
With consolidated debt, you can ease your way out of consumer loans such as,
· Credit card bills
· Payday loans
· Student loans
· Mortgage or lease loans
· Personal loans
A consolidated loan is a simple way to get you out of the downward spiral of multiple debts. Sounds simple? Let’s dive into details.
Why Debt Consolidation is a Smart Choice?
Debt consolidation is a good option for borrowers who have to return debts to multiple creditors. It simplifies the process considerably by shifting your financial liabilities. You have to pay one lender instead of the need to deal with several creditors simultaneously. Banks and other financial institutions find it beneficial to give debt consolidation loans because such loans have greater chances of debt payment return.
When to Think About Debt Consolidation
The ultimate goal of a debt consolidation loan is obtaining debt return relief at a lower interest rate. Therefore, a debt consolidation loan is worth it only if it offers a relaxed lower interest rate that can help you make larger payments or allows you to be more organized about your financial dealings. It is always wise to rethink the following financial aspects of issues before having recourse to debt consolidation.
. How are you managing your spending?
If you haven’t noticed your spending habits, it is best to do so before applying for debt consolidation. Often the answer is not applying for a new loan but cutting your current spending.
. Speak to your current creditors about payment adjustments.
Debt consolidation is only effective if it offers you a low interest. It is wise to meet with your current creditors and discuss potential payment adjustments that can accommodate you better. Such adjustments can be about the due date, reduction in monthly installment payment, lowering of interest rate, or any other favorable situation that can aid you and the creditor in debt repayment.
. Know all potential disadvantages of debt consolidation.
It is always beneficial to compare the interest rates of your current loans to the ones offered on a debt consolidation loan before making a decision. Making an informed choice about promotional interest rates on debt consolidation can help you in the long run in achieving your financial goals.
. Decide the debt consolidation option which serves your needs the best.
There are many choices — balance transfer credit card, student loan refinancing, home equity loan, personal loan, home equity line of credit (HELOC), debt consolidation loan, etc. Careful observation of your needs and liabilities can help you choose the right option.
How to Apply for Debt Consolidation
The procedure to apply for debt consolidation is straightforward, regardless of the loan you are applying for. You must meet eligibility qualifications such as proof of employment and credit scoring to be eligible for debt consolidation. Although the requirement of documents slightly varies for each type of debt consolidation, the crediting institutions commonly ask you to furnish an employment letter, 02 months of credit card statement, and letter(s) from existing creditors.
Consulting a Debt Consolidation Attorney
At this point, you will need an expert debt consolidation attorney to help you with the legal formalities to secure a debt consolidation loan, especially on credit card debt consolidation.
Here’s why you need a debt consolidation attorney
Making an informed choice
There are several options for debt consolidation available to you as a borrower. It makes the whole process a bit intimidating to make the right choice. A debt consolidation attorney will help you navigate these options and choose the one serving your interest the best. Consulting a debt consolidation attorney is always beneficial before you decide to make a move.
Risk and benefit analysis
Many banks and credit unions do not inform the leaders about potential risks of loan consolidation like promotional interest rates or additional fees. That is where a debt consolidation attorney comes into play, informing you about benefits with risks incurred with the new loan.
When Debt Consolidation is Not Worth it
That begin said, debt consolidation is not always worth it if it does not meet the following aspects.
- The overall interest rate offered by the debt consolidation is not zero or lower than what you are already paying on your existing loans.
- You are accumulating more debt by using the same credit card for more purchasing and not cutting your spending.
- The promotional interest rate period has a limited duration. You observe a sharp contrast between promotional and charged interest rates after the expiration of the initial promotion period.
- Your credit rating does not support debt consolidation. A delay of 60 days or more on a monthly debt installment can negatively impact your credit rating.
- If you do not have a sustainable income source to cover the duration of your debt, consolidation of debt won’t help you pay off your existing loan.
Final Words
Debt consolidation is a helpful tool to get out of current debts if it offers a low-interest rate than what you are paying on existing loans. Keep an eye out for interest rates of crediting institutions after their promotional period expires. If the bank, credit union, or other crediting institution is not offering zero or low-interest rates then debt consolidation is not worth pursuing. Moreover, observing your spending habits can also prevent the accumulation of future debts and help you save money to make larger payments to repay your consolidated debt.