What to look out for when taking consolidation loan
We all have our own reasons why we are involved in debts. It could be due to the difficult economic times or due to personal needs. Whatever the reason is, we all want to get out of debts. Thus, there are financing firms that open its doors to anyone who wants to settle their debts such as payday loans until you can completely eliminate being indebted and take away all the stress that you feel caused by these debts.
Debt consolidation becomes one of the most helpful ways out of debt. Though it could save you from a financial meltdown, it could also be the cause of your falling into a deeper debt trap if you did not use debt consolidation the right way. Let’s explore what you should look out for when considering debt consolidation.
1. Outline your financial situation
This is the first thing you should do before making any decision. It is advisable that you took an honest look at your current financial situation. You have to look at what your outstanding debts, then look at how much you are earning monthly. This is the best way to be able to move forward when considering debt consolidation.
It is also useful if you get some financial education. Financial education gives you a clear, well-defined view of your current financial situation, where you wish to be and how you can get there. It also gives you alternatives in debt solutions.
2. Proper research
Research is very important in debt consolidation. This is because you want to find the easiest way possible to pay up. You probably want to start by checking all the companies that are offering consolidation loans. You want to pick companies that will genuinely help you get out of debt with a good consolidation plan. It is advisable that you shortlist as many companies as possible and keep an open mind at this time. This is where you have to check what every company has to offer. Do your research online or visit the companies and have professionals explain the type of consolidation packages they have.
3. Review your options
You should put down all your options and take a closer look at each option. Double check all their policies, standards etc. Make calls and inquire more information before you make the final decision of choosing the consolidation company you would like to work with.
You are solely responsible for your financial situation. Be as inquisitive as possible. Understand everything they have to offer. Pay attention to the fine print. You do not want to regret later for having picked the wrong consolidation company.
4. Interest rates and fees
Understand that high-interest rates are probably the cause of your financial meltdown. Thus, you have to be very careful while making a decision here. Different debt consolidation companies have different rates for their consolidation loans. It is highly advisable for you to pick the company with the lowest interest rate. This will help in making sure you are comfortable repaying the loan. Look for the lowest rate that is helpful in your situation. Look out for the additional fees the consolidation company may charge. Make sure they are minimal and low. Try to make punctual payments as there are late charges if you do not make your repayments on time.
5. Loan tenure
This essentially involves the loan’s tenure. With reference to your source of income, negotiate with the debt consolidation company for the tenure that you are confident of paying up the loan comfortably. Loan tenure and interest rate go hand in hand. If you have a good interest rate, you will definitely have a time frame that is suitable for your financial situation. Don’t put yourself in a situation where you are in constant pressure to service the loan.
6. Terms and conditions of the consolidation loan
It is advisable to be extra careful with the terms and conditions of the consolidation loan. That is why you should be reviewing your choice of consolidation company very carefully in the first place. Before you sign anything, have a financial expert check out the terms and conditions for you, or at least make sure you understand everything in the contract. You have to pay extra attention to the fine print. This is because your understanding of the terms could be very different from what the consolidation company has in mind.
7. Effect of a consolidation loan on your credit score
The last thing you want is to have a bad credit score and minimizing your future chance of securing a loan from the bank. You have to look for a consolidation plan that will not hurt your credit score.
You don’t want to go back to the same rotten financial situation you used to be. You want assurance that once you have paid up your consolidation loan, you will be able to live a debt-free life. You have to look for a consolidation plan that facilitates that. You want to have the right interest rates, minimal additional fees and a reasonable loan tenure in your chosen consolidation plan.
9. Scam consolidation companies
A lot of debt consolidation companies are out there promise the consumer an easy way to get out of debt. You must understand that what you see may not be what you get. These companies are spending millions in marketing to attract new clients. Most of their consolidation campaigns are just publicity stunts which may eventually be disadvantageous to you if you are not careful. Always be careful with every consolidation company that approaches you. Inquire about what kind of products they have and evaluate how much they are actually going to help you.
10. Stay alert and informed
To come out debt-free, you need to stay alert. You need to be confident, keep your current financial situation in mind and try to contain your debt situation as much as possible. It’s all about being careful when seeking help with your debts instead of sinking deeper into them.
Alex is a former budget manager turned entrepreneur. He works mainly at home on his credit score advice website and writes a financial blog on the side. He hopes to expand his business into a full online lending company for bad credit as soon as he gets enough investors.