Consolidation of a personal loan can make so much sense in certain instances such as when you have multiple loans, you want to deal with fewer lenders and you want to lower interest rates. Consolidation can sometimes be the first step if you want to take more control over your finances, especially if you have debt that is moderately significant but not out of control. Read on to know whether or not you are a good candidate for personal loan debt consolidation.
Why Consolidate Personal Loan Debt
Debt consolidation is beneficial because it can help you lower your interest rates. If you are paying off multiple loans, you can pare down the number of loans you have to pay at one time, making loan payments easier for you.
Are you a good candidate for debt consolidation?
While debt consolidation has its advantages, not all borrowers are ideal candidates for consolidation. This can be the best option for you if you have a plan to pay off all your debts, your debts are moderately significant but not out of control, and you have the means to control your spending. If your debt has reached amounts when meeting monthly payments has become impossible and you can’t see any way of paying off your debts in the next five years, consolidation won’t be of much help to you in the long run. Also, debt consolidation can be beneficial if you have a reasonably high credit score. Individuals with outstanding balances can still have high credit scores if they pay on time. Making sure you made on-time payments, even if it was just the minimum amount, can help you obtain favorable personal loan rates that are lower than the rates on your credit card debts.
How to Consolidate Personal Loan Debts
The first step towards debt consolidation is taking inventory of your debt. Do this by making a list of each of your loans, credit card balances, corresponding interest rates, and calculate the totals for outstanding balances and monthly payments. Also, check how these debts have affected your credit score.
The next step is exploring the consolidation options open to you. Choose among unsecured, secured and even alternative loan options to see which ones can give you the most favorable rates. In the process of choosing which option is the most ideal for you, consider the total cost of borrowing, since opting for lower monthly rates can still result to a higher personal loan amount you need to pay over time. It is also important to have a debt avoidance plan in place before you sign up for any personal loan. Remember, you are opting for consolidation as a way to restructure your debts. It is therefore important to avoid incurring obligations during this time so you can focus on paying off the debts you are already facing.
Debt consolidation may be the answer to debts that are easier to pay off, especially if you are someone with moderate and not severe debt and you want a way to simplify or fast-track repayment. Get in touch with your personal finance expert today to see what your options are.