Debt consolidation is one of the most beneficial steps you can take to take control over your financial situation. When struggling with debts, many consumers unfortunately have high outstanding balances on high interest rate debt. More than that, this debt is often set up on a revolving term, which can make it even more difficult to pay off. You may feel as though you are making huge payments each month, but despite this, you are barely making a dent in the principal balance despite the large payments. Debt consolidation can improve this situation, but first, you need to find the right consolidation loan to apply for. If you have bad credit scores because of your debt situation, you may think that you have few options available. However, there are debt consolidation loans available for individuals with bad credit scores.
Consider Secured Versus Unsecured Loan Options
When looking for the right loan program to apply for, you first need to think about whether you want a secured or an unsecured loan. A secured loan will require you to pledge collateral with the loan. You must have significant equity in the asset to include it in the loan, and this may commonly be a house, a boat or a car. In exchange for the collateral, you may have lower interest rates, lower fees and even a higher loan amount. If you do not have collateral available, you may consider an unsecured loan for debt consolidation.
Think About Your Loan Needs
One of the key differences in various debt consolidation loan programs is the loan amount. Loan amounts may vary from a few thousand dollars to tens of thousands of dollars or more. Therefore, as a first step in the debt consolidation process, make a list of all of the debts that you want to consolidate into one loan. Include the principal balance, interest rate and monthly payment. Add up the totals for both the principal balances and monthly payments. Your loan amount will need to be large enough to account for all of the debt, and your monthly payment ideally should be lower than your current monthly debt payments. When you search for a lender, keep these two factors in mind.
Have a Repayment Strategy
Another important step to take when searching for a debt consolidation lender is to look at the repayment terms. Some require you to pay the funds back in a very short period of time. Others, such as a home equity debt consolidation loan, may have a 20 or even a 30 year term. The term length will affect how affordable your monthly payments are. While you need the debt payment to be manageable for your budget, you also need to pay off the outstanding debt within a reasonable period of time. Therefore, pay attention to the debt repayment options carefully, and develop a reasonable repayment strategy for your needs.
Review the Lender Options
A final step to take when looking for a great debt consolidation loan program to apply for is to review the lender options. Lenders range from local banks to specialized debt consolidation lenders. Specialized lenders typically have more programs available for individuals with bad credit scores. However, if you plan to pledge collateral, using a local bank may be suitable for your needs.
Consolidating your outstanding debts into one loan with a lower interest rate is a wonderful solution that can get you back on track financially. This solution can result in more manageable monthly payments and faster debt reduction. As you explore the options available, look for a lender that fits the bill in each of these areas.