Putting less money down
A debt consolidation loan is a new loan that is used to pay off all of the other loans and credit card debts that you already have.
With a debt consolidation loan, you can pay off all of your debts with just one payment. A personal loan is what a debt consolidation loan is.
The main goal of taking out a debt consolidation loan is to lower your interest rate while giving you a monthly payment you can afford. It also keeps assets from being at risk and keeps the debtor's credit score from going down.
If you are having trouble making monthly payments on loans with high interest rates, you may want to look into a debt consolidation loan. Another benefit of debt consolidation is that it keeps the debtor from having to talk to their different creditors. This stops the calls and letters from the collectors.
What you'll need to get a loan to pay off your debts:
- A written budget that shows how much money you spend and make each month.
- Proof that you have a steady source of income that will allow you to pay back the loan. You could use pay stubs or tax forms.
- If your credit isn't good enough, you might also need a co-signer.
- You might need proof of collateral, like a mortgage or car title, to get a loan.
With a debt consolidation plan, you can pay off a wide range of loans and debts. Medical bills, credit card bills, bills from stores, personal loans, student loans, and even checks that bounced because there wasn't enough money in the account are all eligible.
Before you decide to consolidate your debt, you should think about a few things. These are:
- Whether or not your credit rating will go down. If the consolidation company isn't clear about this, you should look elsewhere.
- Consolidation loan payments. You'll want a monthly payment that is less than the total of your current debt payments, but this shouldn't be done by making the time it takes to pay off the debt much longer.
- Costs that come with consolidation. Even though it's common to pay a small fee, a good debt consolidation company won't promise to lower the amount of debt you owe and won't charge you a big fee up front to do so.
- The interest rate on the consolidation. You want a fixed-rate loan with a lower interest rate than the average rate on your other debt.
As you think about getting a debt consolidation loan, you'll need to look at your total debt and figure out how much you'll need to borrow to pay it off. You should also talk to all of your creditors and see if any of them will offer a settlement (keeping in mind that payoff off a settlement figure rather than total debt may negative affect your credit rating.)
Your next step would be to write down your monthly budget, which should include all of your income and expenses. Don't forget to give yourself some wiggle room, like a small amount for an emergency or other small costs. Look closely at what you can afford to pay back if you borrow to consolidate your debt.
Debt consolidation advantages:
- You can save money by lowering the interest rate you pay, which in turn lowers the amount you have to pay each month on your debt consolidation loan.
- Each month, you'll only have to worry about one loan.
- You'll only have to deal with one creditor, so the others won't try to get in touch with you.
Debt consolidation disadvantages:
You're probably going to be extending the time period in which you are paying your debtors, thus increasing the total cost over time.
You might have to put up your house, your car, or other valuable items as collateral. This puts them at risk if you don't pay back the loan.