Saturday, July 26, 2014, AM | Leave Comment
Debt consolidation involves taking out a new loan through an agency in order to pay down all your qualified existing debt. You then repay the consolidation loan over the next one to four years.
If you are considering debt consolidation, then you should know six things about the process.
You Will Need to Follow a Budget
The first thing to understand is that debt consolidation is a process that usually takes years to complete. You will have to follow a budget during this time. You might have to make lifestyle changes initially. This is necessary so that you can make payments on the consolidation loan on time every month.
You Will Have to Qualify For a Loan
Deciding to go through debt consolidation with a service does not mean you automatically get a loan. You will have to qualify for a consolidation loan. The requirements are more relaxed than traditional bank loans. You will mainly need to have a stable income and potentially assets to secure the loan.
Not All Debt Consolidation Agencies Are the Same
You should know that debt consolidation agencies vary greatly. Some charge low fees and interest. Some have much higher fees. There are non-profit and for-profit agencies. You need to research debt consolidation agencies thoroughly before choosing a service.
You Could Save Money on Fees and Interest
You could save money on fees and interest through debt consolidation. The interest on the consolidation loan could be less than the interest on your credit cards or other debts. You can also avoid revolving late fees or penalties through consolidation. This can help you to pay down your debt faster and for less.
Your Credit Might Be Affected
Although debt consolidation does not specifically show up on your credit report, it can still affect your credit saying you used a third-party company to pay your debts. Your debt-to-credit ratio might change dramatically for a time. Fortunately, the damage done by debt consolidation is usually far less than defaulting or being late on payments for months on end.
You Might Have To Cancel Your Credit Cards
Many debt consolidation agencies require that you cancel your credit cards even though they will be paid off fully by the loan. This helps to prevent you from accruing more debt. You should be prepared to live without credit cards for the duration of the consolidation loan.
Debt consolidation can help you to take control of your finances. It is a way to resolve outstanding debts without having to declare bankruptcy. You should know exactly what to expect before deciding to go through debt consolidation.
Information credited to WBLI Incorporated, debt consolidation in Dartmouth.