Debt consolidation loans are used to pay your multiple debts faster and easier. When you are ready to apply for a consolidation loan, there are certain things you have to know about the whole process of choosing the right type for you and your budget.
What is the debt consolidation interest rate?
This is one of the most important deciding factors, as it will affect your payment for the debt. The higher the rate, the more you will pay for the loan. If you have a negative past record when it comes to your payments, you may not be able to qualify for a low interest rate loan.
Do you qualify for a debt consolidation loan?
If you are way behind with your payments, your credit record may have definitely gotten a bit bad for taking out a loan to consolidate the debts. Unfortunately, if your application is not accepted, you will have to ask them to reconsider and, if this won’t work, to look for new options to get out of your debts.
What is the period of repayment?
You will have monthly payments and your repayment period can be set farther away, so that you can pay your debt more easily. Check the repayment terms offered before choosing between loan consolidation offers and see what works best for you. A too stretched out loan will make your monthly payments smaller, but interest will accumulate over time, so you will pay longer in the end. Consider this carefully.
4 types of debt consolidation loan
1. Home equity loans – this is a loan that you can get by using the equity in your home as collateral. You must have quite a high amount of equity in your house and a relatively good credit record to qualify for a loan.
2. Credit card balance transfer – with this, you can transfer your multiple card balances onto a single card with a low interest rate. If you choose this, make sure you know when the rate expires and ensure you have a credit card with enough limit to hold up your debts.
3. Personal loan – this can be used as a consolidation loan if you are able to borrow a big enough amount of money. It will have fixed payments over time and, once your application is approved, you can use it as a consolidation loan.
4. Debt consolidation loans – this option is offered by banks with the specific reason of uniting your debts into one single payment.
Loan offers and debt consolidation options may vary greatly, so make sure you talk it through with a financial consultant if you don’t know how to choose on your own.