Consolidating loans means merging all your loans with high interest rates as well as credit card debt into one loan that has a low interest rate. Many people do this to make it easy to manage their debt and to be able to deal with only one creditor. There are several steps that you should take to consolidate loans so that you can get the desired financial flexibility with lower monthly payments. However, it is important to look at the main reasons why people consolidate loans before getting into how it is done.
Why You Should Consolidate a Loan
Loan consolidation helps you to get lower interest rates. If you are faced with multiple loans, you are definitely looking for a way of getting the interest rates on the loans reduced. By getting lower interest rates, you will be able to pay back the loan faster and use more money monthly to get rid of the debt, instead of making your creditors richer.
Consolidating loans helps you to put all your debts in a single spot. This makes it easier for you to organize the debt and you can easily tell how much payments are remaining to get rid of the debt burden. It is not simple to work out your whole debt picture when you have debts in several different accounts. When all your debts are in one loan, it is easier to know your progress in paying back the debt.
How to Consolidate Loans
Avoid using your credit cards when shopping around for a consolidation loan. This is because you want to keep a clean credit history, without lots of activity that might affect your credit report.
Get in touch with your credit card companies plus mortgage company and let them know you would like to consolidate your credit card and high interest loans. Inquire if these companies could be having a debt consolidation plan. You should shop around, checking different loan fees until you get the best deal.
Choose the financial company you would like to use for the loan consolidation. Once you have a company, get started with the application process. Single out your highest personal loans and credit cards to consolidate. This company will help you pick which loans and credit cards to pay off.
Focus on the amount you are paying for the loan. This includes upfront and recurring fee, interest, closing costs, points and tax implications. Some banks have very small, if no costs, to get a loan.
Find out the sum cost of the loan. This is calculated by multiplying every month payment by the actual number of months on the consolidation loan, and the adding the points or fees. Check if the cost quote given by the lender is similar to your figures. If not, look into the difference.
Carefully read the loan contract, word for word. Ensure that the interest rate of the loan is what you had consented on during the loan application process. In case there are changes, stop and investigate. Remember, you can always withdraw from the loan, but if all looks good and you are satisfied, sign the loan papers.
