According to a survey carried out by biz women (The Business Journals), one-fourth of Americans are struggling with one debt or the other and they think they will die in it.
If you find yourself in this category, tussling with more debt and struggling to pay them off, there is a clear path to a clean slate and no one has to die. Debt consolidation has remained a topic on the lips of many in the past few years.
The economic meltdown in recent times has prompted banks to tighten up on their risk models of obtaining a loan making it more difficult for customers to get one. Debt consolidation seems like a safe exit from the claws of debt but there are a lot of things to consider before getting started.
A debt consolidation loan is undoubtedly an efficient way to offset the high-interest rate credit cards and save thousands of dollars down the line.
The question most people struggle with is when a debt consolidation loan becomes necessary. People consider their finances and weigh their options and most of the times, they still remain confused and overwhelmed. Is debt consolidation the solution or should consumers explore other options?
Sadly, there isn’t an easy answer to the question. Just like any financial and debt management question, obtaining a debt consolidation loan is purely a matter your personal and financial situation.
Whether or not a debt consolidation loan is a good idea depends on a lot of variables. The fact remains that consolidating your debts has numerous benefits and the major ones remain single monthly payment and fixed rates of interest.
The whole concept of debt consolidation is a great idea but debt consolidation with poor credit is a horrendous mistake nobody wants to make. It leaves a bad taste in the mouth and the consumer could be in a worse state than they initially were.
Some important things you should put into consideration before consolidating your debt includes;
Will Debt Consolidation Get You Better Rates Of Interest?
A lot of people opt for a debt consolidation loan in an attempt to merge their debts into one monthly payment but that’s not the main reason.
The primary objective of everyone who seeks debt consolidation is to reduce to the barest minimum the amount of interest they pay on their debts and this results in some huge savings down the line.
With the American household debt crossing the 13 trillion dollars mark in 2018, most consumers have lamented the high rates of interest payable. This means that before you obtain your debt consolidation loan ask yourself if there’s going to be a significant reduction on your interest rates.
As a matter of fact, the whole process of deciding which debt consolidation vendor to choose should revolve around the best interest rates.
Debt consolidation is only a good idea when the interest rates are absolutely favorable. A lot of people ask what a good interest rate for a debt consolidation loan should look like.
Debt consolidation loans vary in terms of interest rates. A debt consolidation loan can have an interest in as low as 5% while some can also have an interest rate as high as 35%.
A lot of interest rates also fall somewhere in between these figures. Sometimes, your debt consolidation loan could vary in terms of interest from what another consumer pays whereas, the same amount was borrowed.
Lenders often offer different rates and different terms overall based on the borrowers’ credit score. Higher credit score often indicates that a borrower is a credible person to lend to. In cases like this, lenders offer their best rate in order to secure a credible client.
A low credit score, on the other hand, signifies that the investment has a high risk. The lender always increases the interest rate here to cover for the risk of lending to the customer.
Making comparisons to ensure you are getting the best rate is critical in your debt consolidation process. When you can’t find a good interest rate to reduce the overall interest on your payments, it is best to focus on your credit score. This can be achieved by paying off your credit cards as well as your debts as quickly as possible.
How Will You Keep Up With Multiple Payments?
Before you sign the papers of your debt consolidation loan, it’s advisable to consider how many lenders you owe at that period. This always reveals how difficult and inconvenient it is to accommodate several monthly average payments.
One part looks as if you aren’t getting anywhere with your debts and on the flip side, you have to keep track of diverse dates and amounts to ensure that you don’t default.
Sometimes also, your debts just seem impossible to handle. The moment you miss one, the other follows. Your creditors are likely to hold nothing back, sending several emails and calling your phone multiple times to remind you of payments you may at that time, not be able to handle. In cases like this where everything becomes overwhelming, you need a leeway – Debt consolidation loan.
The consideration of all these things makes debt consolidation a necessity. By consolidating your debts into a sole monthly payment, all the stress and concerns about tracking multiple payments become eliminated.
So is debt consolidation loan a good idea? The answer is yes because you make a single payment once a month.
Carefully Consider Your Debt Consolidation Partner
Debt in itself is quite bad but making hasty decisions as well as a wrong consolidator may be a grave mistake. A lot of the debt consolidators out there cannot be trusted.
Although some are quite reputable, several others are ineffective and lack the cognate experience required to get you out of your financial mess.
The reputable consolidators in the market make a living off customers who have let their financial reality make them vulnerable. Most of the times, a low credit score would mean that most debt consolidators will be unwilling to give you a loan because the investment is not a safe bet.
This situation leaves the consumer very desperate and then any lender that shows up, offering the full amount needed without a credit score check will be embraced.
The end result of this is that the lenders offer you a debt consolidation loan with extremely high interest or a debt program that does no good in the end.
You should consider the lender’s status and their level of success. You need to study what the consolidator offers, are they willing to offer you any deal based on whether you have a decent credit score or not, what’s their take on your credit history as well as your ability to pay back?
It’s quite easy to spot the credibility of your consolidator but this requires a little bit of research. There are several search engines at your employ, all you need to do is to type out the company name and see if there are spoilers, comments, and reviews from past clients.
Were their problems solved? Are the problems similar to what you are going through? Carefully examining all these factors insures you against making mistakes. It’s also advisable to consult a professional in the process of obtaining a debt consolidation loan.