Debt Consolidation Loans » debt consolidation loan

Will You Qualify for a Debt Consolidation Loan?

Shaun Connell — Sat, 05 Feb 2011 02:26:22 +0000

Just because you see debt consolidation loans are advertised frequently doesn’t mean these loans are easy to get. Like other loans, debt consolidation loans have approval criteria that must be met before you can be approved for the loan. If you don’t meet the criteria, unfortunately, you may not be approved. Save yourself the trouble of applying and being denied by checking the qualification criteria first.

Check Your Own Credit First

Before you shop around for debt consolidation loans, check your credit to see where you stand. Review your credit report to see if you have any unpaid debt collections or past due balances since these will have an impact on your ability to borrow a loan. Then, check your credit score to gauge where you stand. Credit scores generally range from 300 to 850. The higher your credit score is, the better chance you have of being approved for a debt consolidation loan. If your credit score is in the 500s you have a very small chance of getting approved at all.

Ask for the Approval Criteria

Once you’ve found a lender that you want to borrow the debt consolidation loan from, ask about their approval criteria. The lender probably has at least a minimum credit score and income rating that’s required for a certain loan amount. If you know you have certain delinquencies on your credit report, ask about the likelihood that you’ll be approved with that information on your credit report. Asking these questions upfront will give you an idea of whether you’ll get approved or not. If it seems like your credit history won’t meet the lender’s criteria, save yourself the credit inquiry and look elsewhere.

Avoid Scams

Any debt consolidation loan that guarantees approval without ever checking your credit history is more than likely a scam. All lenders do some type of credit check before they can tell you whether you’re approved, how much you’re approved for, and the rate you’ll have to pay on the loan. Don’t get too excited about any type of loan guarantee. It may backfire.

Using Home Equity

If you have home equity that you can borrow from, there may be more relaxed credit standards since your home will secure the debt consolidation loan. However, you may face a higher interest rate based on a lower credit score.

Other Options

If you don’t qualify for a debt consolidation loan and you don’t have home equity, there are still other options for dealing with your debt. Credit counseling, debt settlement, and finally bankruptcy are all worth considering.

Disadvantages of Debt Consolidation

Shaun Connell — Fri, 28 Jan 2011 03:48:35 +0000

If you’re thinking about alleviating your debt trouble by consolidating your debts, there are some disadvantages of debt consolidation you should consider.

You’re not really paying off your debt. When you use a debt consolidation loan to combine your debts, you’re only reorganizing your debt. Your payments may be easier to make, but you can’t let that fool you into thinking you can handle more debt, because you can’t. In fact, you may even be denied for new credit cards or loans since your debt load hasn’t changed. If that happens it’s for the best.

If you use a home equity loan, second mortgage, or home equity line of credit to consolidate your debt, then you’ve put your home on the line for unsecured debt that could be bankrupted if necessary. If something happens and you can no longer afford to make payments on your home equity loan or second mortgage, you risk foreclosure. Eliminating the debt through bankruptcy isn’t an option once it’s secured by your home.

Debt consolidation may not reduce your monthly payment. There are two ways to lower your monthly payment through debt consolidation. The first is by lowering your interest rate. However, you may not qualify for a lower interest rate if you’ve been late on payments or if you have a lot of debt. The other way to lower your monthly payment is to extend the length of the loan. Doing that means you’ll pay on your debt longer and you’ll end up paying more interest over the long run. It’s not the ideal situation, but it may be the best choice you have.

Your credit score could be affected if you try to consolidate your debts using a credit card balance transfer. That’s because a large part of your credit score (30%) takes into account how much of your credit limit is being used. If a balance transfer puts you close to your credit limit, you’ll face a temporary drop in your credit score. Fortunately, your credit score can rebound as you pay off your credit card balance.

A large balance isn’t the only drawback of consolidating with a balance transfer. Many people sign up for introductory balance transfer offers, but are unable to pay off the balance under the introductory period. Quite often the new interest rate is even higher than the interest rates before you transferred balances. If you haven’t paid off a significant part of your debt, you could be back in the same situation – a large minimum payment that you can barely afford.

These disadvantages are very real, but can be managed if you decide that debt consolidation is the best option for your debt.

Benefits of Debt Consolidation

Shaun Connell — Sat, 11 Dec 2010 01:06:49 +0000

One of the methods you can use to deal with your debt is debt consolidation. Through debt consolidation, you use a loan to pay off your existing debts and you then begin making a single monthly payment to get rid of your debt for good. If you’re considering debt consolidation, here are some of the benefits of that debt solution

A Single Monthly Payment

Perhaps the biggest advantage of consolidating your debt is that you now have one payment to take care of (almost) all your debts. You don’t have to keep up with several different due date. You don’t have to write several different checks. You write one check, one time a month to take care of your debt.

Debt consolidation may not cover every single one of your debts. For example, you might only consolidate your unsecured debts, like credit card debts and medical bills and leave you car loan and mortgage out of the consolidation. In that case, you’ll pay your debt consolidation loan, car loan, and mortgage. Still, it’s easier than paying 6-10 different bills every month.

A Lower Interest Rate

If you choose the right debt consolidation method – like a home equity loan or second mortgage – you can often get a lower interest rate than what you’d be paying on your credit cards. The benefit of a lower interest rate is that you don’t have a high cost associated with your debt. You save money in the long run and you can get out of debt faster when you have a low interest rate.

Shorter Repayment Period

Consolidating your debts almost always gives you the opportunity to pay off your debts in less time than if you kept making minimum credit card payments. Debt consolidation loans have a fixed repayment period, so you know exactly how long it’s going to take to pay off your debts. When your debt is still scattered on credit cards, it could take several years to pay off your credit cards and the repayment period changes as your interest rate and payment amounts change.

Stop Collection Calls and Notices

If you’ve been getting calls and letters from your creditors and debt collectors because you’ve fallen behind on your debt payments, then debt consolidation will help you. Once you pay off your past due bills with a debt consolidation loan, the calls will stop because you’re essentially caught up on your payments. But, if you don’t pay off certain unpaid bills and you don’t catch back up some other way, then the calls and letters will continue. That’s why it’s important to get a debt consolidation loan large enough to cover your payments.

Debt Relief

Perhaps the biggest benefit of all is that you get some relief from your debt. Debt consolidation doesn’t eliminate your debt obligations, but it rearranges your debts so it’s easier to pay them off for good.

What to Look for in a Debt Consolidation Loan

Shaun Connell — Fri, 10 Dec 2010 04:28:57 +0000

When you choose to go the debt consolidation route to handle your debts, the goal is to find a loan that you can use to pay off your debts. To make sure you choose a debt consolidation loan that will ultimately help you pay off your debts, you should consider a few things.

Make sure you’re actually signing up for a debt consolidation loan. There are many programs out there that go by the name “debt consolidation” but these programs aren’t really consolidating your debt. Instead, they’re setting you up on a debt management plan, and they’re just consolidating your monthly payment. There’s a big difference. With debt consolidation, all your old debts should be paid off with a loan.

The loan should be big enough to pay off your debts. The amount of the debt consolidation loan is crucial. You need to be able to borrow enough money to pay off at least your unsecured debts. This includes credit card balances, outstanding collections, and medical bills. If your debt consolidation loan is too small, you’ll have to come up with a solution to pay off the debts that can’t be repaid with the loan.

The interest rate should be low. If you’re trying to figure out what the interest rate should be, just average out the interest rates for your existing debts. If you want to save money repaying your debt, then the interest rate on your debt consolidation loan should be lower than the average interest rate on your existing debts.

The interest rate should be fixed. There are two basic types of interest rates – variable and fixed. Variable interest rates go up and down based on the market interest rates. Many of your credit card interest rates are variable. When you have a variable interest rate, your monthly payment will also go up and down when your interest rate changes. But, if your debt consolidation loan has a fixed interest rate, then you’ll have a predictable, steady monthly payment for the life of the loan. Note: if you’re consolidating your debt with a home equity line of credit, you may not be able to get a fixed interest rate. The interest rate should still be low, though.

The repayment period should be four to six years. If your debt consolidation loan repayment stretches on for too long, you won’t save any money on interest. You might end up with a lower monthly payment, but that low monthly payment will come at a long-term cost.

Debt consolidation loans are a common way to deal with overwhelming debt. When you choose a debt consolidation loan, make sure you pick one that won’t cost more in the long run.

3 Risks to Avoid With Debt Consolidation

Shaun Connell — Wed, 08 Dec 2010 23:57:08 +0000

If you choose debt consolidation as a method to deal with your debts, there are some things you have to watch out for – things that could turn an otherwise decent debt solution into a nightmare. Ignoring the risks of debt consolidation could make it harder for you to get out of debt or worse, you could end up with way more debt than you started with.

Longer repayment periods increase your total cost.

When you consolidate your debt, you’re looking for a loan with a lower interest rate and a lower monthly payment. However, just because your interest rate and payments are lower doesn’t mean your debt cost is actually lower. In fact, you could end up paying more for debt consolidation in the long run if the repayment period is longer than it would have been if you hadn’t consolidated. Longer repayment periods mean you pay more interest on your debt consolidation loan, so it doesn’t work out to such a great deal for you.

Your new $0 balance credit cards could backfire.

Once you pay off your credit card balances with a debt consolidation loan, you’ll have thousands of dollars in available credit opened up to you (assuming your credit cards are still in good standing). Leaving these credit cards open is too tempting and you run the risk of charging up your balances again. If this happens, you’ll end up with a debt consolidation loan on top of your newly maxed out credit cards. The best thing to do is close all but one of your credit cards and use that final credit card for emergencies only. That way, you won’t have the opportunity to create more debt until you’ve repaid your debt consolidation loan.

You may not qualify for a good interest rate.

By the time many you realize they need help paying back their debts, you may have missed a few credit card payments. In turn, your credit score has been impacted and you’ll have a hard time getting a good interest rate on a debt consolidation loan. Unfortunately, you need this good interest rate to keep your monthly payments low and to save money on debt repayment. In some cases, missed credit card payments can keep you from getting a loan at all and the debt consolidation option is taken off the table completely. So, keep making your minimum monthly payments, even while you’re considering debt consolidation and other debt options.

Managing Your Debt Consolidation Risks

The goal of consolidating your debts is to lower your monthly payments and lower the cost of repaying your debt. Keep these goals in mind as you consider debt consolidation options. Once you’ve successfully consolidated your debt, take caution not to worsen your situation by creating more debt.

Debt Consolidation Loans Make Your Debt Target Easier To Hit

Staff Writer — Thu, 16 Sep 2010 11:22:12 +0000

When people get into debt, they often believe there is no easy way to get out. A debt consolidation loan provides some relief by reorganizing outstanding loans. Consolidating several loans into one makes paying off debt a bit easier and debtors can even save some money in the process.

The debt consolidation loan is basically one large loan that is used to pay off all the other loans in existence. Using a debt consolidation loan does not provide direct reduction of debt, it merely consolidates the debt, as its name implies. Rather than making separate loan payments to each creditor, the debtor just makes one payment each month. This method of reorganization represents a positive step in cleaning up one’s credit.

Debt consolidation loans may have a lower interest rate than the overall rates of the loans being consolidated. This results in the debtor paying less money over time. In addition, debtors can exchange their variable interest rate debts with a single loan that has a fixed interest rate. This allows individuals to better manage their finances because they know what the loan payment will be each month.

Some debt consolidation loans involve paying less money each month but paying it over a longer period of time. This can be negative for some people because the loan will take longer to repay. On the other hand, for those who are strapped for cash, making a smaller payment that is feasible for the wallet is better than making no payment at all.

Using a debt consolidation loan, individuals can automatically get themselves out of debt. They can then establish an automatic loan payment arrangement using their bank account. This money will come out of the account before it can be spent, allowing the loan to be paid off quickly and efficiently.

Debt Consolidation Loans Help You Simplify Debt Payments

Staff Writer — Thu, 16 Sep 2010 11:20:35 +0000

When an individual is in debt, it is usually with more than one creditor. The person must make multiple payments to lenders and credit card companies on different dates, which can get very confusing. A debt consolidation loan simplifies the payment process and helps individuals begin improving their credit.

The debtor uses the debt consolidation loan to pay off all the outstanding debts. The debtor then makes only one payment each month to the debt consolidation loan company, rather than individual payments to each creditor. This means only one check to write on the same date each month, rather than the multitude of checks that previously needed to be written during different times of the month.

The debt consolidation loan serves the purpose of immediately paying off the debt. Some consolidation loans even allow student loans to be included in the creditor list. Individuals will no longer need to worry about various debt payments looming over their heads. They can start to rebuild their credit history in a positive manner by responsibly paying down the consolidation loan.

A debt consolidation loan payment can sometimes be set up as an automatic withdrawal from a checking or savings account. The individual will not even need to write a check on a certain date because the money will automatically be debited from the bank account. The only thing the person will need to do is record the transaction in the bank journal. This makes things much simpler and eliminates the possibility of missed payments that can negatively affect the credit score.

Aside from simplifying the process of paying off debts, a consolidation loan can actually save an individual money. The loan may have a lower interest rate than that of the outstanding debts. It also usually has a fixed rate, rather than the variable rate offered by many unsecured forms of credit.

How a Debt Consolidation Loan Will Help You Get Out of Debt

Shaun Connell — Sun, 30 Aug 2009 15:51:46 +0000

If your debts are stacking up, you may wonder just how a debt consolidation helps you get out of debt. The process is fairly simple and straightforward, and there are a couple of ways to accomplish debt consolidation.

One method involves getting an entirely new loan that is large enough to pay off all the other debts. You then have just one payment monthly, and frequently you can get this loan from a bank or credit union at a favorable interest rate. The term of this new loan may last longer than the payoff of all the other debts in order to bring down your monthly payment to a level you can afford. This might be offset by the reduction in overall interest rate. Having just one monthly payment to make, and one due date to remember, may be easier to manage. The financial institution makes out checks to each creditor, which you then forward to pay off the old balances. You should not open new credit or use old cards until this loan is fully repaid, to stay out of future trouble.

Another method which can help you get out of debt through debt consolidation is working with a debt management company. There are several different ways they can work with you. First, they are able to negotiate lower interest rates, fee reduction, and removal of penalties assessed previously. Secondly, some companies will help you manage your debts. They do the negotiations, and then you make the lower payments. You need to agree to not incur new debt while you are making your payments.

A third way the debt management companies can help is to handle your payments for you. They negotiate deals, and you pay them cash monthly and they make payments for you. They do charge a fee for this service, and payments should be made on time by this company. They can make deals with creditors, because they will have more credibility than you with the creditors.

With a fourth method of debt consolidation to help you get out of debt, you pay the debt management company until enough cash is built up in escrow to make final deals with creditors. You are put behind in payments enough that it shows a hardship, and the creditors will then be willing to settle. Debt consolidation helps you get out of debt, so you can start fresh again.

Best Ways to Get Out of Debt

Shaun Connell — Fri, 28 Aug 2009 19:39:36 +0000

Unfortunately is seems it is very easy to get into massive amounts of debt, but nearly impossible to get out of it. The best ways to get out of debt take a lot of hard work and determination on your part, but in the end the feeling of freedom that you have will be well worth the effort you make.

It is recommended that you first make a list of exactly how much you owe. As daunting as it may appear on paper, you need to have it listed. Also list your income on a monthly basis so you know what you have to work with.

If necessary, get a second job. Keep the amount of money out of your check for basic needs such as food, shelter, a car payment, (so you can get to that second job), and any other things that you absolutely have to have to survive. This doesn’t include expensive cable and/or cell phones. Try to cut down on every un-necessary item on your list of bills. If you have to seek further employment, try to keep the money you make from the second job to use only for paying off your debts.

After making a list of the debt you owe, choose the items that have the highest interest rates to try to pay off first. Always send in more then just the required amount. It may seem like it takes forever to get the first bill paid off, but when you finally get to scratch it off the list, it will motivate you to keep trying.

If you have a second car that isn’t used often or isn’t really necessary, sell it. Not only will it lower your basic monthly bills like insurance, gas and upkeep, you can use the lump sum you get the it to pay off a whole bill. If you own your home, look into getting a second mortgage.

Quite often you can consolidate al of your bills into one affordable payment by getting a loan on your house. Make sure you speak with a credit counselor first though, to be sure it is the best thing for you to do, and that company you choose to deal with is on the up and up.

One of the best steps you can take to get out of debt is to immediately is also to stop using credit cards. You may wish to keep one that has a low interest rate in case of an emergency, but get rid of the rest of them.
If you absolutely have to, make use of a credit counselor, but be very careful in choosing which you use. Check with the Better Business Bureau before hand.

Unfortunately there are too many shady companies claiming to be there to assist you to get out of debt, but they will only make things worse in the long run. There are two types of credit counseling companies. One states it is for profit with the other being a not for profit. They provide basically the same services, and most charge a fee either way, so it is best to chose wisely if you need to procure this option.

In some instances you can set up a payment plan with your credit card companies that allow you to keep a good credit score, but you won’t be able to use the card once you sign the agreement.

Whichever way you feel is the best way to get out of debt, remember to work hard and be patient. Given time and practice you can relieve yourself of all excess debt.

Why Debt Consolidation Loans Make Sense

Shaun Connell — Fri, 21 Aug 2009 21:13:20 +0000

Everyone has money problems from time to time. There is no shame in that. What is a shame is not handling those problems in the best way possible. For many people, a debt consolation loan is the ideal solution. Here’s why.

A debt consolidation loan combines all your current debts into one easy to manage monthly payment to make it easier to get out of debt. Consolidating your debt leaves you with more money in your pocket, since the total of that one payment is usually much less than the combined total of all those individual bills.

As a result, you get control of your life once again, and can actually think about something other than how you are going to manage to meet that credit card payment next week.

Another benefit to debt consolidation loans is that you often end up owing less money over time. This is because there is a good chance you can get a better interest rate on the loan than the rates you carry on the debts you retire by taking out the loan. That difference in interest puts additional money back in your pocket, giving you a little something extra to enjoy now and then, or to go into your savings if you like.

Debt consolidation can also help you avoid destroying your credit rating. If you are close to being unable to keep up with all your debts, slow pay and no pay notes on your credit reports are not far behind. By paying off your debts using the proceeds from a debt consolidation loan, you create excellent references on you credit report, as well as make it easy to stay on top of that single payment.

There is even a chance that taking out a debt consolidation loan can help you avoid the possibility of bankruptcy. Many people accumulate a series of small debts over time, and don’t realize just how much they owe in total. The situation only becomes apparent when they are no longer able to pay all those debts in a timely manner. Debt consolidation helps you step back from the brink of insolvency and bankruptcy, and gives you the chance to get your budget back on track.

Keep in mind that while a debt consolidation loan can do a lot of good things, it’s not a magic bullet. You still need to learn how to budget more effectively, so you won’t end up in the same boat again. Make the most of the second chance that the loan provides, and you won’t be sorry.