When used accordingly, debt consolidation loans can be genuinely helpful, allowing you to reorganise your debts and get on the right path. On the other side, when you don’t manage them accordingly, you might end up sinking in deep debt, coping with higher interest rates and loan terms that are hard to meet.
Before we start presenting the main Dos and Don’ts regarding debt consolidation, we’d like to briefly explain what the process entails. In short, such a loan incorporates your outstanding debt into a single loan. Ideally, the loan terms and interest rate should be much more convenient and easy to cope with. Nonetheless, each financial decision comes with its set of pros and cons.
Debt Consolidation Loans – Dos
Do Get a Credit Report
Essentially, your chances of having your financing application approved depend on your credit score. That is why it is important for you to have it checked before filing an application for debt consolidation loans. To begin with, your credit score will impact the convenience of the loan terms, as well as the interest rate you’ll get.
Therefore, the primary reason why you should get a credit report is that it might contain errors. That being said, you should take the time to analyse the information in each report, to assess its accuracy. If you do find errors, you’ll have to report them to the credit bureau and have them removed. You could receive your credit report from Australian Lending Centre.
Pick a Reputable Lender
You should know that the Internet overflows with lenders that offer debt consolidation loans. Nonetheless, this doesn’t mean they are made equal; quite the opposite. That’s why it pays off to look around for the right lender for your needs. One of your priorities should be to analyse the lender’s reliability, experience in the domain and credibility. At the same time, you should have a look at other people’s experiences with the lender.
Try to Repay Your Debt As Quickly As Possible
A primary downside associated with debt consolidation loans is that the repayment amount is lower. Thus, this imminently prolongs the lifespan of the loan, meaning that you’ll be in debt for a long time. Nevertheless, before you take out this type of financing, try to analyse your budget and the way in which your income is likely to grow so that you can make arrangements for repaying your debt sooner.
Debt Consolidation Loans – Don’ts
Don’t Keep the Same Spending Habits
Getting a debt consolidation loan allows you to reorganise your debt, and, in this way, get out of the debt cycle. Nevertheless, that isn’t bound to happen unless you do whatever it is in your power to change your spending habits. If you keep on spending more money than you make after taking a consolidation loan, this won’t be the solution to your problem. And, before you know it, you’ll be in the same situation, if not worse.
That is to say, as long as you don’t change your spending habits, you’ll be back to square one before you know it.
Don’t Take a Loan If the Terms Aren’t Advantageous
The main reason why you’re looking for debt consolidation loans is to minimise your debt. And the way in which you can accomplish that is by looking for a loan whose terms are actually more advantageous than your current loan terms.
Nonetheless, bear in mind that browsing for different lenders that offer debt consolidation loans doesn’t imply sending numerous loan applications again and again. You should know by now that this practice is frowned upon by most lenders and banks, not to mention that it minimises your credit score.
Don’t Get the Wrong Loan Type
It’s essential to comprehend that there are two major types of consolidation loans – namely secured and unsecured. Thus, you should determine the main distinctions between the two. To be more specific, home equity loans, second mortgages, and secured lines of credit account for secured loans. The good part about these loans is that the interest rates are lower, because of the asset linked to the loan.
On the other side, unsecured consolidation loans might be more convenient since they don’t include your house or another important asset as security. Still, the thing is that, if your credit rating isn’t the best, you are less likely to get an unsecured consolidation loan, since good credit is one of the fundamental requirements.
The bottom line is that debt consolidation can help you – if used correctly. Therefore, make sure you understand the way in which this type of loan works, shop around for various loan products, and sign the deal only after knowing for sure that it is the right option for your situation. Debt Consolidation is eager to assist you by facilitating convenient financing options! Contact us and one of our specialists will guide you.