8 Dos and Don’ts of Debt Consolidation
Are your multiple debts becoming too difficult to manage and a bit expensive?
A Debt Consolidation Loan May Be What You Need!
What is it, you ask?
Well, a debt consolidation loan is a financial product that allows you to consolidate your personal debts into one and pay them off in one regular repayment over the life of the loan. Typically, customers consolidate high interest debt like credit cards, personal loans, and auto loans in order to benefit from a lower rate and pay less interest over time.
There are ways to consolidate debt, however, to make sure that you are actually saving money and in some cases time as well. Because in the end, there is no point in taking out a consolidation loan if it ends up costing more than paying off your debts separately.
Debt Consolidation Back:
- Make sure you get a lower rate: Rule number one when it comes to taking out a debt consolidation loan is that you should opt for a product with a low interest rate. By reducing the amount of interest you are charged on your multiple debts, or even on at least one of your debts, you are more likely to keep more money in your pocket.
- If you want repayment stability, set this rate: A lot of debt consolidation loans come with a fixed interest rate, which means that it will stay the same for the life of the loan. This is beneficial if you want reliability in the amount you pay with each regular repayment, because unlike a variable rate, a fixed rate does not change with the market. The problem here is that if you’re on a fixed rate and your lender cuts the rates, you won’t benefit from it, unlike variable rate customers.
- Make sure you have flexible repayment options: Many lenders offer borrowers the option of making weekly, bi-monthly, or monthly repayments, which means you can choose a schedule that matches payday. Likewise, some loans allow you to make additional free repayments to help you pay off your debt sooner. In some cases, you may also be able to make withdrawals from your additional contributions, which can be handy if you are strapped for cash. Keep in mind that if you pay off your loan in advance, you may have to pay a prepayment penalty, which can run into the hundreds of dollars.
- Check your credit score before applying: Before borrowing from the bank, it’s always a good idea to check your credit history to assess where you are at. It will give you an indication of how likely you are to be approved for a loan as shown on Bridgepayday`s website information on the type of rate you might qualify for. Remember that some personal loan lenders offer tiered rates that reward customers with great credit by offering low competitive rates. However, if you fall on the other side of the fence and have bad credit, you might be considering high interest, which might make debt consolidation not worth the effort.
Debt Consolidation Don’ts:
- Spend Too Much Fee: There are a range of fees to consider when applying for a debt consolidation loan, including initial application fees, ongoing service fees, and exit or prepayment penalties. If the cost of applying and the loan outweighs the cost of separating your debts, it’s probably not worth it. So start with a low rate and then try to find a loan with minimal fees to avoid paying too much.
- Integrate your mortgage with your consolidation loan: A big step in debt consolidation includes your home loan. Unlike a credit card or a personal loan, the terms of the mortgage are set for a longer period (usually between 20 and 30 years). So rolling over your home loan could lengthen the time it takes to pay off your other debts and end up costing you more in interest payments over time … and who wants to do that?
- Opt for a long loan period: Speaking of extending your debt, if you can, don’t go for a long-term loan. Remember, the longer you take to repay your loan, the more interest you pay. As long as it doesn’t impact your daily finances, try to keep your repayments similar to what you’re paying right now and choose a shorter term. This way you will avoid paying too much interest and you will avoid paying your loan – earn, earn!
- Miss your refunds: Like any form of borrowing, it is important not to miss your repayments on your debt consolidation loan. Not only may you face late fees whenever you miss a regular repayment, but you could also hurt your credit rating, which could impact your ability to borrow in the future.
Want to compare debt consolidation loans today? Check out these top loan options below or head to our Debt Consolidation Loan page to learn more.
*DISCLAIMER: The Comparison Rate combines the interest rate, fees, and charges of the lender into one rate to show the true cost of a personal loan. The comparison rates displayed are calculated on the basis of a loan of $ 30,000 for a term of 5 years or a loan of $ 10,000 for a term of 3 years as indicated, on the basis of monthly principal repayments. and interest, on a secured basis for secured and unsecured loans. basic unsecured loans. This comparison rate applies only to the example (s) given. Different amounts and conditions will result in different compare rates. Costs such as drawing charges or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
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