When you are caught in the complexity of the multiple debts you have taken and want to have an easier way to pay them off while lowering their interest rate, a debt consolidation is your best option. By converting the multiple loans into a single loan, debt consolidation simplifies your monthly loan repayment. In this post, we will look at a few debt consolidation tips that you should keep in mind when planning for personal loans.
1. Know The Risks
The first thing to do is to educate yourself about debt consolidation so that you are completely aware of the risks involved in the program. For example, if you are opting for home loans of about $80,000, then it is ideal that you do not convert them into personal loans. Doing so would simply mean that you convert a secured loan into an unsecured loan. And this is a bad move since you can be in big trouble if some financial issues hit you and you are unable to pay off the loan anymore.
2. Check Your Credit Score
Do a credit check and ensure that you have a good enough score. If your score is weak, then inspect the credit report for any errors. Once you find them, bring it to the attention of responsible authorities and get it resolved as soon as possible. But even after correcting the errors, your score is still weak, then you need to take some strict measures to bring that score up. Consult a good credit repair service and they should be able to help you with this.
3. Balance Transfer Programs
If you have several credit card debts, you should consider using a balance transfer program to get a credit card consolidation. The benefit of this is that you will not be charged any interest for a short time period of about 2 to 3 months. However, once this term period is over, you will again have to pay regular interest rates. Balance transfer cards require people to have high income and net worth.
4. Avoid Using Credit Card
When you have consolidated your debt, you should be wary of using any of your credit cards since you might end up with a new debt. This can put too much pressure on you and might derail the payment schedule. As such, it is recommended that you stay away from using any credit card during the debt repayment period. If possible, just leave your card at home in order to avoid any temptation to use it while shopping. Instead, try to use cash wherever possible. This should keep your credit card spending habits in check.
5. Extra Payments
Look for debt consolidation programs that enable you to make extra payments whenever you want. This is very important if you expect to receive a hefty amount as commission or bonus every year. You can use that amount towards the repayment of debt and ensure that the loan gets paid back very soon. When the loan program does not allow you to make any extra payment, you will literally be stuck with making monthly payments until the term period if over. And for someone who can repay the loan faster, this will obviously be rather irritating.
6. Set Up A Payment Plan
You must have a clear plan as to how you will be paying off the debt. Look at the outstanding amount and calculate how much you will have to pay every month. Compare your income and see what adjustments you will have to make in your lifestyle to save enough money so as to make the payment each and every month. If you have to cut back on certain expenses, then by all means do so. And once you come up with your payment plan, remember to stick to it until the debt is paid off.
7. Use A Co-Signer
When consolidating the debt, you may need to provide some hard assets as collateral in order to be approved for it. This primarily happens because of a poor credit score. And in case you do not have any hard assets to pledge, it is recommended that you look for a relative who is willing to be the co-signer on the loan. This will help you qualify for the consolidation. However, do understand the risk involved in this method. If you fail to repay the loan, then not only will it affect your credit score, but your co-signer will also be dragged into the debt. As such, only use it when you are completely confident about your payment ability.