Most Americans are neck-deep in debts and they are, therefore, in a major financial mess. However, debt consolidation has the capacity to ease your stress and help improve your financial status. It could make your life easier by dramatically reducing the number of debts and loans you are required to keep track of. Moreover, making just a single payment every month could help you save money substantially, provided you get a relatively lower-interest rate as compared to your existing loan interest rate. You no longer would have to ignore some of your bills anymore.
As per https://www.forbes.com, “Debt consolidation is the conversion of high-rate debt into lower-rate debt in order to reduce total interest costs. Homeowners with large amounts of credit card debt who have unused borrowing power on their home have a consolidation option.”
Debt consolidation has been gaining a lot of popularity over the last few years. Ever since the economic recession in 2008, the traditional financial institutions like the banks have actually tightened up on all their risk models. As such, things became too complicated and almost impossible to take out a personal loan easily from a bank anymore. The most effective way of getting a loan was using HELOC and several Americans did not have the necessary equity in their homes to take advantage of such a loan at that point in time.
But today there are numerous online lenders who have completely revolutionized the way people borrow money. Most lenders provide a totally online application process that does not necessitate branch visits. You could get funds transferred to your account within the next business day. You could even sign the contract online. There are many such perks associated with debt consolidation but you need to consider a few important things before you choose to consolidate your multiple debts.
Identify & Understand the Root Cause
Debt consolidation is certainly a fantastic solution for paying off multiple high-interest credit card debts and you would end up saving thousands of dollars in terms of interest bills. Moreover, you would be left with just one monthly repayment. There is no chance of you forgetting the payment deadlines as you simply need to keep track of only one deadline each month. The USP of debt consolidation are fixed interest rates and single monthly payment. You need to know that once you successfully pay off all your outstanding credit card debts using a debt consolidation loan, you would be having zero balances on all your credit card accounts.
It is mandatory to be disciplined and you must essentially make sure that you are not again using your credit card with a vengeance and piling up an incredible amount of debts. Ask yourself what was the root cause of this financial debacle? Was it bad money management on your part? Or were you simply shopping around and splurging uncontrollably? Were you overspending on restaurants or travel? It is critical to identify the main reason why you are in soup? Once you have identified your weaknesses, it is time to make certain lifestyle modifications. Stick to those modifications with determination.
Clean Up All Your Finances before Jumping on the Debt Consolidation Bandwagon
If you have come to a decision that debt consolidation is the best way toward restoring financial stability, you must consider eliminating all ways of generating new debts in the years to come. You need to destroy all your high-interest credit cards and strictly follow a budget. Be firm about sticking to the budgetary constraints each time you go out shopping or traveling. You need to focus on building your emergency fund for future contingencies.
Moreover, you need to chalk out a proper financial strategy as to how you would be paying off your debt consolidation loan. Will you be slashing some expenditure for making the payment or will you take up an additional or part-time job to generate more cash flow? You may browse debt consolidation reviews online to learn about perfect debt solutions and accordingly take the right decision.
Avoid Hard Enquiries
You must be cautious while applying for a personal loan to consolidate your debts. Some lenders would be pulling a soft inquiry but there are still others who would be pulling a hard inquiry. So, do not put in loan applications to every lender offering loans online. Remember a hard inquiry would be adversely impacting your overall credit score. A soft inquiry would not be affecting your credit score negatively.
You need to do research to choose the right loan for your requirements. You could do a comparative study of the interest rates and loan repayment time by using loan comparison engines such as LendingTree or ReadyforZero. These amazing tools would be demonstrating live offers from various lenders. You could compare the payments and interest rates and determine which loan would prove to be best for your unique requirements.
Appraise the Contract Carefully
One of the most important things to consider is whether you have carefully examined the terms and conditions mentioned in the contract. You must meticulously review the contract. See if the lender is charging any additional or hidden fees. Do you need to pay origination fees? Are there any prepayment penalties? You must read the fine print carefully. Understand their late fee policy. Find out if they are understanding and lenient or are they quite strict and unforgiving. Figure out if the lender would be forgiving late fees in specific cases. Examine the contract meticulously and try to identify loopholes if any.
Debt consolidation is a good idea and it is an opportunity to roll multiple debts into a single consolidated loan for you to focus and repay timely. It certainly makes your fiscal life much simpler and you generally, end up making some savings because of the lower interest rate. However, debt consolidation is definitely not meant for everyone. The success of debt consolidation is attributed to your mindset. Sometimes debt consolidation could be a key indicator of bankruptcy. This is because some people would still carry on taking out new loans besides the debt consolidation loan. If you do not change your financial habits, your lifestyle, you are in for trouble. You need to go without some of the luxuries and high-standard of living for a while until your financial situation is restored and stable. Remember your behaviour and mindset is at the root of all evil. Debt consolidation would not do any magic if you do not change your ways. You need to dramatically revolutionize your thoughts and financial actions for using a debt consolidation with great success.