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Buried in debt consolidation? A financial expert weighs in on how to get back on track

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Anyone who’s ever been in debt knows that it can feel heavy. You can feel overwhelmed by the fact that you owe significant amounts of money, whether it’s student loans or credit cards.

You have the ability to make things better. (Yes, even you.) It’s possible that you’ve read or seen stories about people who have paid off thousands and millions of dollars of debt in less than a month. While it might seem simple and easy, the headlines are misleading. However, it is possible. Yes, you will need to sacrifice, be extremely disciplined and most importantly, change the way that you think about money. All of these things are possible.

You are in the right spot if you have lots of debt and want to get out. You can get out of debt. A consolidation loan for debt is one option. Is there a single solution that will work for all? You’re not the only one. Keep reading if you have difficulty keeping track of many different monthly payments, or if interest rates are killing you. Greg McBride, Bankrate’s chief financial analyst shares five key points that you should keep in mind when considering debt consolidation loans. These tips might be the key to turning things around consolidationnow.com website.

5 Questions to ask when considering a debt consolidation loan

1. What is a Debt Consolidation Loan?

Let’s start by defining the basics. A debt consolidation loans is, as the name would suggest, a way of combining multiple loans into one. It’s a very common service that online lenders as well as banks offer.

Consolidating debts can bring you many benefits. Consolidating debts can make it easier to make your monthly payments. It is far easier to pay one loan every month than to keep track of and pay multiple credit companies and/or student loans.

Another reason you might consider a consolidation loan to consolidate your debts? They might offer a lower interest rate. While this might not always be true, it’s something worth considering. More information will follow.

McBride also states that debt consolidation may help boost credit scores. A high credit use can cause credit scores to drop if you have multiple credit cards. Moving those loans to one debt consolidation loan will increase your available credit. Additionally, the balances from your other cards will drop because you used the loan. These factors combined with regular, on time payments on your consolidation loan could mean a nice increase in your credit score.

2. What are the terms of your current loans (or loans strong>)?

Like any loan, you should consider the terms before making a decision on whether a consolidation loan is right for your needs. The length of the loan payments for debt consolidation should be something you are paying attention to. You should consider renegotiating terms if your monthly payments are longer than those on your credit cards. McBride warns against taking out debt consolidation loans that have a longer repayment term than your current ones.

3. What is the interest rates on your current loans?

Some credit cards for stores have high interest rates. In some cases, it can be as high as 20%. To lower your monthly interest, a debt consolidation loans might be right for someone with significant debt. Always review your options and check the interest on a consolidation loan. If the interest rate on a debt consolidation loan is lower than the current interest rate, it may be a good decision. These tiny interest rates can really add up and would you rather have that money in your savings account?

You won’t be able to get a reduction in interest rates if your student loans are included. McBride claims that the interest rates on the debt consolidation loan are simply averages of all the student loans. Consolidating multiple student loan repayments can make it easier if they are too burdensome.

4. Do you have the right to apply for a consolidation debt loan?

A debt consolidation loan works just like any other. However, you will still need to get approved. You don’t have to be in a lot debt to qualify. With this in mind, it’s important to consider whether you’re a qualified candidate for this type. What’s your credit score What’s your debt to income ratio, which is the amount of your monthly income you use for loan payments? What collateral do you have to offer the lender such a house or other properties? These are all factors that lenders consider when deciding whether you will qualify for a consolidation loan.

Do not be discouraged even if your credit score and debt ratio are low. You may be able to get a consolidation loan for your debts, but some lenders are more flexible. It is possible to make some concessions based on your particular situation. Some lenders will approve your debt consolidation loan even if your credit score is not very high. They may also stipulate that the money be paid directly to your creditors instead of allowing you to pay off other debts. They must have faith that you will actually use the money and pay them back. That brings us to the final point…

5. Are you truly ready for change?

McBride argues that this is the most important. It is important to consider how you came up with the debt that you have. If you lost your job or were in an emergency, you’re likely going to be able get back on track after those issues are resolved. If you find yourself in deep debt due to spending excessively or living beyond you means, you need a solution. McBride states that you don’t need to be “moving deck chairs” or moving debts from one lender to the other. A debt consolidation loan’s goal is to make your debt repayments easier. But the key is actually paying off your debt. A debt consolidation loan is not the best thing you could do. It will only free up other credit lines and make them more expensive. Before applying for a loan consolidation, take the time to think about whether you are ready to put your foot down and get out of debt. It will not happen overnight. You’ll probably have fewer boozy brunches and less clothes to wear each season. But, always keep your eyes fixed on the end goal. You will feel empowered when you are free from the burden of debt you’ve accumulated over so many decades.

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