Debt consolidation is an effective solution to pay off multiple debts, whether it’s a personal loan, credit card, monthly bill, or a combination of any of them.
It helps you pay out your existing smaller loans with potentially much lower interest rates and reduced monthly payments, making it a convenient and practical option.
How does debt consolidation work?
To consolidate your debts, you need to get a new loan, and then use this instant money to pay off your smaller debts.
This way, you can skip the hassle of managing multiple monthly repayments and pull them together into a single payment.
Where can I get a debt consolidation loan?
You can get these types of cash loans through banks, credit unions, and finance companies.
But before applying for one, first, you should do a quick self-check so you would know which one would match your current financial standing and objective.
5 Points to consider before getting a debt consolidation loan
#1 Your current monthly repayments: Your goal for getting the instant money is to pay less, and not the other way around. To make this happen, you have to make sure that you know the amounts you are currently paying.
Gather all your bills, bank statements, and credit accounts to get a clear picture of your monthly repayments.
#2 How much you can save: Once you have pulled all the documents you need, calculate the total amount you pay every month and get the average interest of all those bills. Not just the interest, you must calculate exactly what you’re spending and earning each month.
Once you know the true figures, you’re going to have a better idea of what your money is doing so that you can save your cash each month. This is a vital step that would help you compare different debt consolidation loan offers, and which among them would help you save the most.
One of the best ways to figure out what you can save is to use calculators for your personal finance. Pigly.Com has a range of calculators that you can use to determine your ability to save money and how much you can manage each month. If you calculate your finances correctly, you’re going to manage them properly to get yourself out of debt and back in the black.
#3 Your eligibility: Check the eligibility criteria of your prospective lenders to make sure that you will be getting how much you need to pay off all your debts.
Generally, lenders would look into your credit score and history, which includes your current savings, monthly income, and other supporting financial documents.
Keep in mind that you should be of legal age and a citizen or a permanent resident of the country where you’d like to apply for a loan.
#4 Your credit status: The lending companies will check your current financial standings to gauge your capacity to pay for the loan.
Make it a habit to check for the accuracy of the details in your financial statement to speed up your application.
#5 Which lender to choose: Choosing the right lender is a huge factor for a successful debt consolidation journey. To help you get started, you can check various online review sites where customers honestly share their experience with the company.
Your lender will be your financial partner until the day you pay off all your debts (which can last from several months to years), so it is essential to verify if they are reliable and trustworthy.
The instant money from a debt consolidation loan helps you ease the burden of paying a multitude of debts.
Although it’s practical and helps a ton in managing your financial needs, it is not exactly the best solution for everyone. That is why you have to assess your current financial needs and situation before deciding to get one.
And keep in mind, that your financial responsibility doesn’t end when you have completely paid all your existing balance.
The next challenge is to stay within your budget and manage your spending habits once you are freed from your debts.