- Finding a Debt Consolidation Loan
- What is debt consolidation?
- Are there different ways of debt consolidation?
- Why do people opt for debt consolidation?
- How do debt consolidation loans work?
- How To Consolidate Debts?
- How can debt consolidation help you?
- Do you need a debt consolidation loan?
- Alternatives to debt consolidation
- Does debt consolidation affect my credit score?
- Should you opt for debt consolidation?
Finding a Debt Consolidation Loan
If you have too many debts and managing them has become hard for you, then debt consolidation may be the option for you. Although there are some requisites for every borrower to fulfill, you must know that you should have the required income to get a new loan.
To find a creditor who is willing to offer you a loan for debt consolidation is simple. If you have a good credit history, then all you need to do is go to any bank of your choice and ask for a debt consolidation loan. Your good credit history will allow you to get a loan for the same purpose easily. However, if you have a poor credit history, then the task may seem to be quite hard. If that’s the case, you could look into mortgage loans and other methods of financing yourself. Mortgage lenders tend to be less rigid in the matter of loans and debts.
Click on the button below if you have poor credit history and would like to see creditors who are providing debt consolidation loans
Below is a sample list of credit providers for debt consolidation loan
- M & S Bank
- Sainsbury Bank Personal Loan
- Clydesdale Bank Personal Loan
- Yorkshire Bank Personal Loan
- Tesco Bank Personal Loan
What is debt consolidation?
Debts and loans are a huge expenditure to manage at all times. When a person borrows a lot of money from different creditors, managing the interest rates and repayment on time becomes even harder. This is where debt consolidation steps in. Debt consolidation is also called or termed as “debt refinancing.”
Under debt consolidation, the borrower finds and takes up a single loan to pay off the older and other debts. After this, the borrower is left with only one loan to pay off. This not only reduces the confusion of what repayments to pay to which creditor. Other than this, debt consolidation helps you plan your finances by keeping only one debt to worry about.
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This is a common practice in the modern times, and it is effective only when everything has been well-planned.
Are there different ways of debt consolidation?
There are several methods of consolidating your debts. One of the best ways to do this is to consolidate all your credit card payment to a single one. If your credit card charges lower interests, then this option works well and allows you to save up. Other than this, home equity lines or home equity loans are also some good ways of dealing with debts. Consolidation of debt with the help of home loans is one of the best methods as the borrower becomes eligible for tax deductions. Other than this, there are many options provided by the government itself that offer deductions to taxpayers and offer good methods of for debt consolidation.
Why do people opt for debt consolidation?
Debt consolidation is one of the best methods to get rid of small and numerous debts. This financial tool allows the debtor to find a better way of getting rid of the older debts. Furthermore, a loan to get rid of older and the many loans that have been taken by the borrower is large in amount, which is why the total burden of the interest rates as compare to many loans, becomes lighter for the debtor.
Creditors are inclined to allow such practices and give away such debts for consolidation for multiple reasons. However, the most important reasons for providing such debts is the fact that this kind of debts offers a legit return of the money owed to the creditors by the borrowers.
How do debt consolidation loans work?
Although debt consolidation is a useful tool, there are some complications. Firstly, there are two types loans, secured and unsecured. Secured loans are those that are backed by a tangible asset; it could be anything ranging from a house to machinery. While unsecured loans are those loans that are not backed by any assets, which makes these loans harder to attain. Additionally, unsecured loans have higher interest rates and lesser qualifying amounts.
To explain debt consolidation loans in layman terms would be to say that the borrower takes one loan, secured or unsecured, to pay off the older and the many existing loans. Now, this loan for debt consolidation can be from the same creditor or from some other creditor. In most cases, the borrower borrows money from a different lender and pays off the older debts. Once that is done, the borrower simply continues with the newer loan. The loan repayments once all the debts are consolidated are lower than the combined interest and repayments of the other loans. However, if the loan goes on for a longer period, you may end up paying more than what you should have.
However, in all honesty, debt consolidation offers to reduce the burden of repayment of the loan amount than just reducing the number of creditors. If used judicially, debt consolidation offers a good way to manage your debts. Also, the borrowers must have the required income and other pre-requisites to get a loan with lesser interest.
How To Consolidate Debts?
Once you get the loan for consolidation purposes, you can easily work around your creditors. Here are some suggestions to help you out:
- Start with the highest interest rate debt. This is quite common to do. If you pay off the debt with a high-interest rate, then you get to get rid of a big chunk of financial responsibility and threat.
- You can save the smaller loans for later. However, if there is a small loan with lower interests, but is causing you a lot of stress and emotional distress, you should try and pay it off first.
- Another good method of judicially using your debt consolidation fund is by creating a priority list. This will allow you to get rid of your loans one by one. Pay off the most important ones, and then slowly make your way around other loans.
How can debt consolidation help you?
Although this question is nothing new and the definition of debt consolidation is enough to explain how you may benefit out of the debt consolidation process, the question of how this helps you is a prevalent one.
To put it simply, the amount of money you find from one lender against whatever assets you pledge or the unsecured loan that you take is used to pay off one debtor at a time to reduce the interest rates. If you have a secured loan, you may pay lesser interest on the sum you borrow.
Do you need a debt consolidation loan?
Another point to be considered is the need for debt consolidation. Not all people need this option to get rid of their problems and debts. The first step to understanding this would be to list out all of your debts on a piece of paper and add the interest rates alongside. Then calculate the amount of money you need to pay for each of these debts and how will you pay such debts.
This will offer you a clear understanding of the debts you have and the amount of money you will need to pay. Other than this, you can even find the amount of money you will need to borrow from a creditor to get rid of your debts.
By listing out your debts, you will be able to gain insights about your debts and will be able to consider whether borrowing money as debt consolidation works for you or not.
How to find a financial provider for your debt consolidation loans?
Choosing a provider for your money requirements is a massive responsibility. To make sure that all of your problems are sorted and that you do not land yourself in any trouble, make sure that you borrow money for debt consolidation only from a reputable lender. Here are some points to consider:
- Monthly Repayments: Be honest with yourself and decide the amount or the sum of money you can pay as your monthly repayment. Furthermore, you need to evaluate your comfort as well. You will need some money for your basic needs as well, do not forget to consider that when you decide on your amount of repayment.
- Interest rates: You need to look closely at the interest rates. Find out what kind of rates will you be charged, as in are they fixed or flexible? Ideally, you should opt for those loans that offer you fixed interest rates and offer you a lower interest rate than your previous lenders.
- Term and your repayments: When it comes to consolidating your debts, remember to get a larger loan only when you know that the interest and the principal sum that you pay by the end of the term is going to be less than that of what you were initially paying. Look into the time period and the amount you are being charged to get rid of your older debts. There is no point in doing so if you end up paying more.
- Fees and Charges: Every institution and lender charges some amount as processing fees. The charges may vary from institution to institution. Consider the charges and make a decision based on your total expenditure including these charges.
- Charges for missed payments: Lenders and institutions charge a handsome amount of penalty if you miss out on some or one payment. The amount of penalty depends on the amount of money you borrow.
When you opt for larger loans, always remember to look deep into your finances and consider everything before taking the decision of debt consolidation. Mismanagement of finances will only make you suffer.
Alternatives to debt consolidation
There is no hard and fast rule for anyone to only opt for debt consolidation. Debt consolidation loans sound impressive in theory, but practically they do not make sense. And most people end up in larger debts due to this. Debt consolidation is not your only savior if you have many loans, especially if it requires you to borrow more money. However, for you to fight debts and the repayments, you can opt to take up counseling or debt management plans. These plans and ideas may appear costly but will help you save money and will help you to deal with issues of debts easily.
Does debt consolidation affect my credit score?
Opting for a debt consolidation loan does not do anything to your credit score. However, if you miss your payments from time to time, then you are looking at a poor credit score.
Are there any disadvantages or cons of opting for debt consolidation?
As with everything, debt consolidation has its disadvantages as well, here are some of them:
- Debt consolidation may give you the money to get rid of the older debts; you have a new and a larger one at that to think about.
- Debt consolidation loans offer you a false sense of comfort. The time period or the loan term, in most cases is extended.
- If your credit score is poor, it is obvious that you will not get a loan easily. Meaning, you will have to opt for loans on assets or will have to take up a mortgage. And this would mean higher interest rates to be paid.
- Charges and fees for the consolidated loans can vary from one institution to another. There are many charges and many fees. Furthermore, you are penalized for late payments in higher values as well.
All of the above-mentioned points are valid considerations for debt consolidation. Debt consolidation appears to take away all the stress, but the loan still has to be paid back and has to be paid back on time.
Should you opt for debt consolidation?
Consolidating your debts is an easy way to get rid of your worries. And exchanging multiple rated loans for a single one does seem to make your life easier. However, you must never opt for debt consolidation for the sake of convenience. If you do opt for debt consolidation for mere convenience, you may end up losing a lot of money just because of your wrong decisions. Consider all kinds of payments that you will be required to make and every kind of charge that will matter to understand if you should opt for debt consolidation or not.
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