You’re bogged down by high-interest loans. Month after month you make payments, but your progress is slow at best. You’re beginning to worry that you’ll never dig yourself out of your hole.
While there is more than one way to manage debt, a consolidation loan may be just what you’re looking for.
As the name suggests, a debt consolidation loan allows you to bring multiple forms of debt under the same roof. There are many benefits of doing so, such as one fixed monthly payment and a lower interest rate.
If you decide to pursue a debt consolidation loan, here are a few things you should first do:
1. Decide on the Best Type of Loan
There is more than one type of debt consolidation loan, with personal loans and home equity loans among the most common.
The best way to make a final decision is to consult with a loan specialist at your bank. Not only can they provide information on each type of debt consolidation loan, but they can also help you determine how much you qualify to borrow and at what interest rate.
2. Pin Down How Much You Want to Borrow
One of the biggest mistakes you can make with a debt consolidation loan is borrowing more money than you need. Sure, it sounds like a good idea when the offer is presented to you, but don’t lost sight of the fact that you’re required to repay the money.
Add up all the debt you want to consolidate and then apply for that amount of money. Even if you qualify for more, think long and hard about accepting the funds.
3. Compare Lenders
Even though your search is likely to begin at your local bank, you don’t want to stop there. It makes sense to compare a minimum of three to five lenders, as this will give you a clear idea of what’s available to someone in your position.
Ask questions such as:
- What types of debt consolidation loans do you offer?
- What is the interest rate associated with each type of loan, based on my credit score?
- What is the repayment period?
- What does the application process entail?
- Are there any fees associated with the loan?
By charting the answers to these questions, you’ll quickly gain an understanding of which lender and loan type is right for you.
The Decision is Yours
If you’re drowning in debt and struggling to make progress, a consolidation loan is something to strongly consider.
Consult with a loan specialist at your bank to gather basic information on your options, what you qualify for, and how to proceed.
From there, you’ll have the knowledge you need to decide what to do next.
Do you have any experience using a debt consolidation loan? Were you able to save money while improving your financial circumstances? Did you run into any challenges along the way?