Life can be incredibly expensive, particularly when starting a new business, for example. Sometimes that means living outside of our means and taking out loans or credit cards to cover the costs of everyday living. However, if taken to the extreme, too many loans can cause an awful lot of debt, creating an extremely difficult and stressful financial situation.
Debt consolidation, if done right, can take away the stress and even some of the costs of paying off various loans. Consolidation means putting a number of debts into easy and manageable payments. To make sure your best option is covered, find a consolidation loan with a low-interest rate and a reasonable term. Consolidation can be done whether through a loan or a balance transfer credit card to make easy payments.
Debts may include credit card bills and loan repayments. Debts from a multitude of sources can accrue a large chunk of interest, adding extra money to the large sum of debt that you already owe. Loans and credit card accounts can be consolidated into smaller, simplified payments. Here are some examples of some of the things that can be done in order to begin gaining financial control.
Make a List of All Debts
This step can be a hard one. It’s not easy to sit down and list down all our debts especially when we are faced with a staggering amount and number of debts. However, before any steps can be undertaken, we have to know our overall financial standing. Create a list which includes all of the following information:
- The amount of money owed
- Current monthly payments
- Interest rates on the loan/card payments
- Whether it is a secured (tied to an asset such as your car as security for a car loan) or unsecured loan.
Get a Credit Check
Having a clear idea of your credit score will help you determine whether lenders will allow you to take out a loan. There are certain companies that will allow you to check your credit score free without affecting your credit rating. Lenders will only loan to those whom they think will be able to pay them back, which increases the need for a credit check. In most terms, you will need a score of around 600 to be able to take out a consolidation loan.
Things that may not be your fault can affect your score. Check each item within the report to ensure that nothing has been wrongly reported or added in error. Dispute against anything in the report that you are sure does not belong to you.
In order to take a debt consolidation loan, you will need to increase your score. Pay off the debt you can afford to first before you attempt to consolidate if your score is too low.
Research Consolidation Loans
Many lenders will offer a consolidation loan as standard. In fact, they are often advertised on TV as a way of getting out of debt quickly and easily. However, this does not mean taking the first option given to you. Speak to lenders, either in a bank or online.
Make sure that the loan is the best option for your situation. Don’t be tempted to use a secured loan to consolidate your debts. An example of an secured loan is a home equity loan. This is where a lender advances the total loan amount upfront where the line of credit provides a funding source that can be drawn out as and when needed. While this may seem like an easy option, it shouldn’t be something that should be too quickly considered. It is extremely important to be mindful of the fact that these are secured loans that require your property as collateral for the loan. This means that any payments that are paid late, or missed entirely could mean risking your home.
Prioritize
Debt consolidation can either lower the amount of monthly repayments or it can lower the total amount to be paid back by consolidating all the high-interest loans into a lower-interest one. Prioritize which one you need based on your financial situation. If you need a breathing space, find one that will lower your monthly repayments. Do note, however, that the longer it takes you to pay off all your debts, the more you’ll be paying towards interest throughout the life of the loan.
Apply For the Loan
Contact your chosen lender and supply the necessary paperwork needed to process the application. You will need some of this information ready such as identification documents, proof of income, and employer information.
When your loan is approved and you receive the money, make sure to pay off all your existing loans. Don’t be tempted to go shopping. Remember that this money is a loan and should be used for its intended purpose. Otherwise, it will simply add to your debt and will put you in a much deeper financial hole.
Seek Legal Assistance
Debt can become a legal issue if it is ignored. Creditors can threaten legal action, depending on the contracts that you signed. This is why it’s a good idea to seek advice of a qualified professional. A quick online search can bring you to a local debt lawyer such as https://www.mccarthylawyer.com who take each customer’s situation as an individual case and give advice based on individual circumstances. Debt lawyers can also take the stress away from potential harassment from creditors and handling lawsuits.
Debt counselors will discuss your entire financial situation and help you to develop a personalized plan to get out of debt. This could be from creating a budget and repayment plans to helping source education programs designed around money management.
Being in financial difficulty can be an incredibly isolating experience to go through, and can make you feel distant from those closest to you. Do your research to ensure that you use the best option for you to find your way to financial freedom and create the life you deserve for yourself.
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