So What is Debt Consolidation?

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Debt consolidation is the process of combining two or more debts into one. This will then result in a single debt payment and lower the total interest costs for you. Through debt consolidation you will have a better defined road map to becoming debt free!

Debt Consolidation Loans
A debt consolidation loan is a single loan, usually from a financial institution, that gives you the ability to repay your debts to some of or all of your creditors at the same time. As a result, you are left with only one outstanding loan — to the financial institution. Basically you are streamlining all your debts into one single payment which makes keeping track of minimum payments and deadlines a whole lot easier. Another bonus is that a debt consolidation loan may offer you an interest rate that is lower than the ones charged by your creditors, saving you money in pesky interest charges. This is an attractive option for those who have outstanding debts at high interest rates. What you have to do to begin the process is to ask your financial institution for a loan equal to the amount of your currently due total outstanding debts. In most circumstances, the financial institution will settle all the debts for you and, in repayment, the only monthly payment you will have to make will be to them directly. Make sure to consult with several financial institutions before you choose a consolidation loan because of the fact that bans are competitors and their interest rates may vary.

What Debts Can Be Consolidated?
Applying for a debt consolidation loan is a great option because it is suitable for debts such as credit cards, public utilities or other consumer loans. The downside is that not all debts can be streamlined into a consolidation loan. For example, a mortgage cannot be included. The financial institution you choose will be able to tell you which of your debts you will be able to pay off with the loan that they grant you.

Who is qualified?
In order to qualify for a consolidation loan, you generally needs to have an acceptable credit rating and sufficient income to demonstrate that you are capable of managing the loan (meaning you would be demonstrating that you will be able to make the monthly consolidation payment, in addition to paying for your regular monthly bills and expenses). A poor credit rating will likely diminish your ability to obtain a consolidation loan, thus it is best to act as soon as possible while your credit is in good standing.

What is the Fee for a Debt Consolidation Loan?
It does not cost anything to apply for a loan in order to consolidate all of your outstanding debts. However, a fee may be charged initially to open your file. Ask about the fees at the financial institution that you choose.

Things to Consider and Keep in Mind
Before you set out to meet with a financial institution’s loan officer, it is a good idea to formulate a list of your current debts in order to determine the total amount of your outstanding debt. You do not have to include all of your debts, but it is better to tell the loan officer about them so that they can give their best suggestions. Since the officer will need to glance through your credit file in order to make a decision about a consolidation loan, they will have access to all this information either way. Be completely honest from the beginning to avoid questions later on.

If the interest rate offered by your financial institution seems too high when they propose it, try to shop around at other financial institutions in order to negotiate a better rate. Some credit counselors suggest shopping at no more than 3 institutions because having an unusual increase in the amount of inquiries can have a negative influence on your credit score.

It is wise to know that there are many finance companies that offer consolidation loans, but usually charge a higher interest rate compared to a mainstream financial institution. Remember that before you agree to take on any loan agreement, it is important to carefully review and consider the terms and conditions such as the loan period, interest rates, special terms and additional fees so that you have an exact idea of how much the loan will end up costing you.