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5 Things to consider before applying for a debt consolidation loan

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By: Joy Mali
on 22nd Apr,2014

Knowing how to consolidate debt properly may not be as simple as it seems.
5 Things to consider before applying for a debt consolidation loan


Knowing how to consolidate debt properly may not be as simple as it seems. The idea of debt consolidation is amazing, the ability to combine all of your payments into one, who would not want to be a part of that. Although, there are some companies out there that may scam individuals, as well as, take advantage of the fact that they are in a vulnerable situation. Before making a decision, everyone should consider a few things.

Will It Help You Save?


Clearly when someone is considering applying for a debt consolidation loan, they have reached a point where they feel overwhelmed by their current financial situation. Although extremely tempting, one should honestly consider if debt consolidation will even save them money. Interest rates seem appealing in the beginning because they are generally quite low, but when you take a low interest rate over a longer period, you may be paying the same amount of money, if not more! People get into binds sometimes, but do not be blinded by promises without considering every option first.

Is Consolidation A Permanent Solution?

Consolidating debt can improve credit ratings within a couple of years and it seems like a quick fix. If you are unable to maintain your consolidation payments though, you have dug a larger hole than what you were in before you started. Suddenly, this quick fix solution has become an enormous problem and once you are upside down on a consolidation loan, you do not have many options at all. Debt consolidation is helping you in regards to combining payments, making it easier to maintain – this loan pays everything out on its own. This only works if you change your spending and savings habits. If consolidation is an idea going around in your head, you need to ensure that you stick to your new budget.

It Is Still a Loan


Maybe you have decided to get your credit score and are a little overwhelmed; you are stressing yourself out and thinking about the different options available to you. Debt consolidation seems like a great idea, but another thing to consider is that this is still a loan. Granted, it is a loan that will umbrella your other loans and the interest rate is lower most of the time. It is important to check whether your debt consolidation loan is secured or unsecured. Unsecured loans are usually accompanied by very high interest rates.

Making the Switch


As mentioned briefly, some debt consolidation loans are unsecured loans. Most of the time debt consolidation loans are secured, where they will take over your unsecured debt and make it secured. The major issue with making this switch over is that since your debt is now secured, if you are unable to make your credit payments, in turn, your credit score will plummet. If you are unable to make your home equity loan payment, you may lose your home. A way to avoid situations like this from occurring is having the option to seek out an unsecured debt consolidation loan that has a fixed rate, but make sure you do your math. You do not want to get into something that will not work for you.

Other Options


There are alternatives to debt consolidation that include creating a budget that you will be able to stick to. In addition, it is important to consistently monitor your credit report, especially if you are trying to repair it. This way you can keep a watchful eye on the fluctuations and dispute any items that may not belong there. You may be pleasantly surprised at what you can have removed from your credit report if you take the initiative to do so. There is always the option of calling your various lenders and asking if they can offer you a lower interest rate. Most companies will be willing to work with you; they are not trying to take all of your money.


As with any decision, there are many things to consider before getting a debt consolidation loan. You may want to write everything down and compare the positives versus the negative outcomes of getting a consolidation loan to assist you in your decision.

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