Debt consolidation can simplify your finances and bring you much closer to living debt-free.
For some, this process of combining loans and reorganizing debt could save money. But that isn’t always the case. Make sure to consider a few of these factors before accepting a debt consolidation loan.
Try to Improve Your Credit Score First
Improving your credit score could help you qualify for better interest rates. Even a small variance can make a big impact.
Although difficult, you can take a few steps to improve your credit score:
• Pay bills on time
• Make minimum monthly payments on credit cards
• Set up automatic payments so you don’t miss one
• Keep credit card balances below 30% of your credit limit
• Don’t sign up for any new credit cards
• Review your credit report for any mistakes
In some cases, you may be better off with your current interest rates on outstanding debt. Check the interest rates on your credit card bills and other loans to compare whether it’s really better to consolidate debt.
Look for the Lowest Interest Rates
Interest rates will vary by lender and are very often contingent on the borrower’s financial history and credit score. Before accepting any debt consolidation loan, be sure to compare interest rates and see what else is available to you.
Consider the Repayment Period
In many cases, you’ll want to pay off your loan as fast as possible. You’ll become debt free sooner and save money on interest.
Still, trying to pay off debt too quickly may require high monthly payments. If you can’t afford to pay those monthly payments, you may find yourself in need of another loan to cover household expenses. Before accepting a loan, decide on a budget and what you can realistically afford to pay each month.
Check for Any Additional Fees
Beyond the interest rate and monthly payments, debt consolidation loans may also come with other fees such as early termination fees or origination fees. Additional fees could mean you pay more money than you really can afford. Before accepting a loan, review the fees attached to decide if it’s the right choice for you.
Compare Loan Offers
Online lenders have made it easier than ever to apply for a debt consolidation loan. Many services allow applicants to handle everything online, from filling in forms to submitting final documents. These services also give borrowers the opportunity to shop around for different loans and compare rates. In this way, they can select a debt consolidation loan with the lowest interest rates and ideal repayment terms.