Debt Consolidation: When You Should Consider It
There are many forms of debt relief, one of them being debt consolidation. Debt consolidation is when you combine all of your debt into one loan in order to simplify your debt payments into one single payment a month.
Debt consolidation isn’t the best option for every debtor but can be beneficial when used wisely. Furthermore, there are certain qualifications to getting a debt consolidation loan which can vary depending on the lender. However, as a debtor, there is a time when debt consolidation is best.
You are struggling to keep up with your monthly payments.
When it comes to debt, it isn’t uncommon to be paying multiple debts at once. However, trying to keep up with these debts can be difficult especially when each debt is on a different payment plan. Furthermore, the stress that comes with having to keep track of each debt’s monthly payment, can be added pressure that can make decreasing debt that much more difficult to manage.
Instead of having to keep up with multiple payments a month, consolidating your debt can combine all of those payments into one single monthly payment. This payment will cover all of your outstanding debts at once, without the worry of having to make another payment within the same month.
You don’t want your credit score to be impacted by your debt in a negative way.
The best time to get a debt consolidation loan is while you still have a good credit score. This is because no lender is going to be willing to lend out funds to a consumer who already has a poor credit score. The lender will see this poor credit score as a sign that you are a high risk borrower and will be less likely to give you the debt consolidation loan.
Before your credit score does take a potential dive for the worst, consider a consolidation loan. You will be able to better manage your debt and could end up getting out of debt faster.
You want to decrease your monthly payments and pay off your debt faster.
One of the advantages of a debt consolidation loan is the ability to decrease your interest rate. By decreasing your interest rate, you can also decrease your monthly payments and pay off your debts faster.
A decrease in your monthly payments, will make your payments toward your debt more affordable and easier on your budget. As a result, you will spend less time paying off your debt and reach complete debt relief sooner.
What Are the Criteria of a Debt Consolidation Loan?
The factors that a lender will consider when you do go to qualify for a debt consolidation loan may vary, but these are the basic criteria.
Lenders are looking for a fairly high credit score. They want the chances of you paying them back to be high and want to take little risk in giving you a debt consolidation loan.
Not only will lenders be looking at your credit score but also your credit history. Lenders will look at your credit history to gauge your financial situation and to see how you behave as a borrower, if you have defaulted on a loan and your payment history.
Total Loan Amount
Lenders will sometimes have a minimum and maximum amount of debt that they will be able to consolidate. Each company or lender will have their own threshold but they will asses your debt to see if your specific loan amount qualifies for their program.
A big part of whether you will qualify for a debt consolidation loan will be determined on your monthly income. A lender will look at your financial stability as a factor in your ability to pay back the consolidation loan.
Length of Repayment
A lender will take into consideration the timeline of your repayment plan on your consolidation loan. Many debt consolidation loans are on an accelerated repayment plan and your ability to make those payments on time could affect your eligibility.
Debt consolidation is not for everyone, but it can be a great way to relief yourself of some or all of your debt. Before, you do make a final decision on consolidating your debt, think about consulting a professional. A debt expert will be able to advise you on your best options and be able to look over all of your documents before you sign off on a loan.