You’re stuck in the deep end of student loan payments, credit card debt, car loans, and medical bills. And you’re, understandably, frustrated. You are looking for a life preserver and are researching the various options that are available like debt consolidating, balancing, transferring, refinancing, or even settling your debts. In this article, we give you some honest facts about debt consolidation.
Things You Need to Know About Debt Consolidation
– Debt consolidation offers a single lower monthly payment because you will need to opt for an extended repayment term. The downside is you will be in debt for a longer time.
– Opting for a debt consolidation program does not automatically mean you’ll get a lower rate of interest on the new loan. You could be charged more.
– Debt consolidation is not done for free. It comes with charges for balance transfer, closing costs, and in some cases, annual fees.
– Debt consolidation does not imply debt cancellation. Your outstanding debt remains as is, but the mode and frequency of repayment change.
How Does Debt Consolidation Work?
– You fill out and submit an application form to the lender.
– The lender checks your credit and debt-to-income ratio.
– You provide all the necessary documentation related to your loans, finances, mortgage, insurances, and, of course, your identity.
– Your application will then be evaluated by the lender.
– If your application is approved, you will either get a line of credit from the lender, or the lender may directly pay off all your debts.
– You will have to begin repaying the lender as per the agreed-upon terms.
When Should You Consider Debt Consolidation?
Debt consolidation is a good idea in the following cases:
– The costs involved to complete the debt consolidation process are nil or zero.
– You are offered a fixed interest rate on the loan (and not a variable interest rate).
– You get a new interest rate that is lower than the one you currently have.
– Your repayment tenure is not too long.
– You understand that consolidating your debts does not mean your debts have ceased to exist.
