Debt is a huge problem in the modern economy. It is accrued very easily and is extremely difficult to mitigate or eliminate. One of the more prominent debt management techniques is consolidation- where multiple loans are bundled together into a single debt with a fixed rate and a single due date every month. There are several hoops you would have to jump through to get your debt consolidation loan, which is why you should be familiar with the process early on to avoid any major roadblocks.
Debt consolidation is an effective debt solution that allows for a combination of multiple debts into one single payment plan. This would help you make your payments every month much easier, more systemic, and more organized. You must, first of all, check your finances and know accurately how much you owe and determine the exact amount you are eligible to loan accordingly. Next, you must determine which type of loan you would ultimately choose to pay off all your debts. There are many ways of consolidating your debts. You need to go through several effective steps for getting your debt consolidation loan. This would necessarily include choosing proper loan terms, confirming your application, and ultimately, repaying the loan.
Applying for the Loan
The application process begins with a preapproval. It is an inquiry into your credit situation to produce a quotation for the rate. A general set of requirements is a debt-income ratio less than or equal to 50%, a decent credit situation (i.e. a 580-739 FICO score), and a good credit history without any foreclosures, repossessions, bankruptcy, and so on. Since lenders use risk-based pricing, a poor credit history will lead to a high-interest rate so that they can recoup as much of their money as possible in the early stages, while a good history will result in lax pricing.
Choosing the Terms
The next step is picking the terms of the loan- the amount borrowed and the time over which it is repaid. Normal lenders allow you to borrow between $1000 and $50000 over 2-5 years based on your creditworthiness. Once this is confirmed, you may proceed with the loan. The application is finalized once you have verified your identity, income, any other qualifying information that is asked for, and the detailed terms of the loan itself. A hard inquiry in the form of pulling your credit report will also be performed by the lender.
Approval, Closing, Disbursal
Once all the checks are completed, the company commences the closing process, which ends with the funds being disbursed. The standard procedure is a wire transfer, but several lenders may prefer paying each creditor directly or sending a check.
Repayment
The terms agreed upon in your undertaking contract come into play once you have received the funds. You will have to begin repaying the loan while adhering to the amount and time frame that was agreed upon.
Picking the Right Consolidation Firm
There are an astonishingly large number of lenders and financing firms offering debt consolidation services with a wide array of options and restrictions. Sizing them up by visiting or calling as well as going through debt consolidation review websites and making an informed decision will go a long way in defining your debt consolidation experience. The usual metrics on which companies should be judged are:
- Type of company
- Interest rates
- Terms for Loans and Refinancing
- Penalties and Fees for Defaulters
- Repayment options provided
- Hardship options and other additional features.
Conclusion
If you can successfully discipline yourself to strictly fulfill your payments, you may consider debt consolidation. While you are consolidating your loans for your unique financial circumstances, please ensure that you have learned a lesson from this experience. You must focus on making the right financial decisions in the future so that you do not face the same debt horror again in your lifetime.
