Tag: debt consolidation

The Reality of Debt Consolidation

For many people, debt consolidation is the light at the end of a very dark financial tunnel.  However, you need to understand that all is not sunshine and roses and you need to understand the ramifications of debt consolidation.  Does that mean you shouldn’t consolidate your debts, no, you absolutely should but arm yourself with information first?  Here is the reality of debt consolidation.

The point of consolidating your debt is too put all your outstanding loans into one place, which includes credit cards, car payments, and various other loans.  It is easier to manage when you have one payment per month, and most of the time the high-interest loans like credit cards see a reduction in the interest rate.  All of these makes it easier to pay everything off sooner and at less cost to you.

Finding the Right Debt Consolidation Company

Here’s is where the struggle lies, there are thousands of companies out there that do debt consolidation.  In fact, since you’ve been thinking about consolidating your debt, you’ve probably come across hundreds of ads.  Picking the right company for your situation is what becomes a major task.  Here is a video showing you exactly how to choose a debt consolidation company.

Like anything else, it is in your best interest to speak with several companies before you choose the one you will work with.  They will all offer you different interest rates depending on the amount of debt, credit score and your assets.  It’s a lot like shopping for a mortgage, and like a mortgage, you want the absolute lowest rate possible.  Your purpose is twofold; pay off your debt as soon as possible and save yourself as much money as you can doing it.

Interest Rates Can Increase

Debt consolidation companies will justify their high-interest rates by the risk of helping you get out of debt.  While this isn’t necessarily a good reason, bear in mind that if you miss a payment without talking to the debt consolidation company first and trying to work out an alternative your already high-interest rate will skyrocket.  You are trying to pay off your debt not make higher interest payments, always make sure that your monthly payments are manageable.  Should something happen, medical emergency, job loss or something of that nature always call your debt consolidation company right away and try and work something out.

Don’t Fall Into the Same Pattern

Once you start paying down your debt and your credit score increases yet again, you will once again be offered credit cards and loans.  Don’t fall into the same trap of debt that you cannot afford, don’t incur new obligations while still trying to pay off the old ones.  If you fall into the credit trap again, you will be right back where you started and this time around debt consolidation will be that much harder.

Debt Consolidation and Bad Credit: What to Do

Lots of people are looking to find their way out of debt and make their budget and their lives more manageable.  They have probably looked into getting a debt consolidation loan. You take all of your current loans and put them into one loan, with only one payment per month.  Preferably at a lower interest rate and smaller payments than what you are trying to juggle right now.  You have a definite end date of when the loan will be paid off instead of a never-ending pile of bills.

But…

What if your credit score is less than perfect?  You want to improve your finances and get back on track, being debt free seems like a dream.  A debt consolidation loan would help you get a grip on your finances and work towards achieving that goal of becoming debt free.  Don’t let your credit score hold you back there are options out there for you.

Qualifying

The biggest fear of having a bad credit score is that you will not be able to get approved for any loan.  If an emergency comes along, you need a new car, or it is time to move to a bigger/smaller home, you may not be taking action because you are worried about getting a loan approved.  Wanting to consolidate your debt with a debt consolidation loan causes the same worry.  Here is some information to help you get the things you need.

Banks or Loan Consolidation Companies

You’re first instinct when you need a loan is to go to the bank, but there are debt companies as well.  Banks, credit unions, and finance companies have stricter criteria when it comes to lending money.  However, if you get turned down by the bank, look into a debt consolidation company.   They have plenty of experience dealing with people who have less than stellar credit.

Be careful of who you work with, not all of them are legitimate companies.  Here are some red flags, if they offer you government money to take care of your debt or they don’t take the time to go over your financial situation with you or try and charge you upfront fees.  Bear in mind that loans that involve bad credit will come with higher interest that will cost you more.  You are however getting out of debt, and you can pay it off sooner when your income increases.

Improve your Credit Score

You can work on trying to improve your credit score before you apply for a loan.  Monitor your credit score regularly to make sure that any changes are positive ones.  Try and make your payments on time as this will help greatly.  Pay down as many past due to credit cards and avoid opening new accounts no matter how tempted you might be.

Final Options

If you cannot get approved for financing with a debt consolidation company, then it might be time to try debt management or debt settlement company.  These are designed to help you pay down your debt within five years, and it is your last resort before bankruptcy.  Bear in mind that there will be a significant impact on your credit score.