Debt consolidation – Two lovely little words are hyped as the panacea to all your financial woes.
How do you know if consolidating your financial liabilities is right for you?
One basic indicator that you need consolidation of your debt is simple: your debts exceed your income.
Now there are a variety of strategies required to dig out of debt.
You can try reducing your latte factor, and consolidate the saved money towards your credit cards and other unwanted debts.
Or, perhaps another alternative, is to take advantage of one of the numerous debt consolidation offers that litter your mailbox, web browser, and email inbox.
Debt Consolidation: How to Dig Out of Debt With Your Bottom Dollar
Okay, so your debts are beyond your repayment abilities, and you’re almost ready to bite on that debt consolidator’s hook.
But, you’ve heard tales of nightmarish experiences with fraudulent debt consolidation firms who are out to scam your house right out from under you.
First, you need to understand debt consolidation before you dive in.
The essence of any consolidation of debt boils down to gathering up in a pile.
Envision all your bills, past due bills, and final notice bills you may be experiencing.
Now, swoop all those bills into a pile. You’ve just consolidated your debt.
Hey, wait! That’s not what I meant by debt consolidation you are thinking.
Well, the trick to understanding debt consolidation is that your debt does not magically disappear.
Instead, you literally pile it all together, ideally in an intelligent fashion that reduces your overall interest.
Through the reduction of interest rates and the extension of your repayment period, you can usually reduce your monthly payment.
Make no mistake, however, as debt consolidation does not eliminate debt.
It is a strategy best employed when you commit to researching and correcting your personal spending problems that landed you in debt in the first place.
After you have committed to eliminating your debt-inducing problems, you may very well be ready to try debt consolidation.
One extremely popular form of debt consolidation is college loan consolidation.
This can be extremely good to consolidate, as it is possible to lock in favourable rates due to incentives, and greatly reduce the monthly payment.
College loan repayments can be cut in half through consolidation, not to mention the extra breathing room can allow you to focus on other debts.
Another form of debt relief involves taking out a bank consolidation or other similarly backed offer.
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These are slightly more risky forms of consolidation, however, they often have generous rates compared to the default APR on a credit card.
Many loan consolidations have rates from 9-17%, whereas the default rate on credit card debt can be as high as 33%.
Pay advance loans can actually skyrocket their APR in some instances to 1000%.
In cases like this, consolidation can actually save you money.
The pan-ultimate debt consolidation usually requires signing something as collateral.
These are extremely risky consolidation offers, often with adjustable rates, wonderful “free” gifts for taking out the loan, and an amazing amount of fine print.
These are often debt consolidation offers to require the title of your car or house as collateral.
It is generally recommended by nonprofit debt organizations you research all of your options, and really address any strategies other than debt consolidation prior to putting your house on the line.
A very important recommendation for anyone considering debt consolidation:
You should never go into any consolidation program without having a financial assessment done by you, a local church, a lawyer, or a non-profit organization.
Properly used, debt consolidation is a valuable tool to regain control of your life following emergencies that extend beyond your means and can be a potential lifeline for millions of Americans.
Does it hurt your credit score if you consolidate debt?
Sometimes on temporary basis Consolidation loans can hurt your credit ratings.
The lender (Bank, NBFC) will do a credit check when you apply for a loan.
This will result in a hard inquiry, which could lower your credit score by up to 10 points.
What credit score is needed for a consolidation loan?
To get approved for a consolidation loan, you’ll have to fulfil the bank’s minimum requirement.
Generally, the score requirement is above 720 but some lenders can approve applications with a low score of 680.
Many banks also offer pre-checks and free reports to monitor your credit score on a regular basis.
