This question strikes everyone, who deals with debts, but not everyone, who deals with debts, needs a debt consolidation. If you can’t answer this question independently, you should definitely read this article to the end or apply for a debt settlement program assistance. Right now you can change the situation with your debts and change your life forever!
What Are Debt Consolidation Loans?
If you have gathered several debts (for instance, credit card debts, short-term loans, medical bills, installment loans), you have a chance to join them and create one big loan except several tiny ones. This is a conception of the loan consolidation – creating one loan out of dozens of small ones.
The Advantages of Debt Consolidation
Obviously, there are pros and cons of debt consolidation loans that you need to know. Let’s begin with the advantages:
- One of the substantial advantages of the loan consolidation is facilitation and convenience for the clients. Instead of 10 checks that you make monthly, you will make only one. It helps clients to avoid mistakes connected with fulfilling the checks and reduces risk of the late payments.
- The second important advantage is the more affordable interest rate. By the combining of all your debts, you combine all interest rates and possibly will have to pay the average size of the final interest rate.
- Loan consolidation gives you an opportunity to get out of the debt faster as paying off one debt is psychologically easier rather than paying off dozens of tiny ones.
- Consolidation of your debts is better for your credit score. According to the statistics, people are more likely t pay off one loan faster and it’s better for the credit score. Paying off 10 loans for the longer period is worse.
- It’s also easier to monitor one debt rather than control several.
- You will understand how much time it will take to pay off the whole debt.
Unfortunately, there are some drawbacks of the loan consolidations and we have to inform you about them too. Still, don’t forget that everything contains both pros and cons, especially when it comes to the financial issues. So, before applying for a loan attention, learn the following pitfalls:
- The financial experts usually require collateral.
- You don’t need to provide an outstanding credit score but the bad one can negatively influence the approval as well as a good credit history can help you to start a consolidation.
- There still exist companies that will charge a high-interest rate for this service.
- You need to realize that by consolidating your debts, you don’t get rid of them, you still have to pay off the whole amount of debts, you just make it more convenient.
Debt Consolidation Help
There are several ways to deal with debt collectors using your mortgage or car loan.
Don’t skip this part if you have a mortgage and home’s equity. Home equity is a part of the loan that you have already paid off. If your home loan is $300 000 and you have paid $150 000, then $150 000 is your equity. You can use it to gather your debts under one debt.
2) Car Loan
Car equity works like the home one. The only difference lies in the size. Car equity won’t likely cover a big consolidation.
If you have nothing to offer as collateral, then you might apply for an unsecured loan. Remember that you have to be sure in creditworthiness as unsecured loans are known for the high risks for the lender. This is a good way to apply for loans to consolidate your debt.
By the way, check the difference between debt consolidation and personal loans.
How to Be Approved for Loan Consolidation?
Banks have the specific requirements for those, who decide to apply for a loan consolidation. There are several of those, which you have to follow:
- Your latest payments should be paid on time.
- You need to have a good credit report.
- You have to provide a proof of your ability to pay off the debt.
Furthermore, unfortunately, the bank won’t approve the request from a person, who has a big amount of debts.
By following these requirements, you will more likely to pass the loan consolidation approval process successfully and overcome the payment period faster!