Lately, if you have opened your mail or watched TV, you will know that there are a number of companies out there eager to help you in consolidating your loans, lowering your interest rates, cutting your debt in half and helping you get rid of your debt quickly. Indeed, it makes perfect sense for people to consolidate all their high interest loans as well as their credit card debt into a single loan that offers more manageable payments with a low interest rate. However, it is essential for people to proceed with caution when they decide to consolidate loans if they don’t want to end up paying far more than necessary. Here are the steps they can follow:
1- Get your FICO score and credit report. Your credit score will have a large impact on any loan you take out so it is best to find out what it is. It will be possible for people to consolidate their loans at a very low interest rate if their credit score reveals that they have a reasonable credit rating and score quite well. People should carefully peruse their entire credit report to ensure that it’s accurate because the score will be hurt due to inaccuracies and will prevent people from getting the rate they deserve.
2- It is essential for individuals to understand the difference between a debt management program, debt consolidation and debt negotiation. There are companies that may use the term consolidation, but they will be using other methods such as bankruptcy, settlement or even debt management. In debt management programs, the agency will act as a middleman between the creditors and the individual. They will negotiate with the creditors to reduce the interest rate or fee of the loan, but this will show up on the credit report and will have a negative impact on one’s rating. Debt negotiation, on the other hand, is the settlement of debt at a lesser amount than what’s owed. This means that individuals will pay what they can and the rest will be written off. However, when people choose to consolidate loans, this means that they get a loan from a new lender for paying back all the old loans. Now, they have to pay off one loan with lower interest and monthly payments. Credit rating might be blemished temporarily, but will improve in the long run.
3- People should figure out their budget and find out what is the highest amount they can afford to pay as this will help them in quickly getting out of debt. Apart from that, there are different types of consolidated loans that can be found and people should get the right one. There are secured loans such as one that require collateral from individuals and are often considered second mortgages. Similarly, there are also unsecured loans, which are more beneficial for people because assets don’t have to be risked.
When people decide to consolidate loans, they should choose the company carefully to ensure that they are getting the best interest rates.