According to reports, consumer debt continues to rise – increasing by $1 trillion within the last 5 years. It is a combination of credit card debts, auto loans, mortgage, etc. This is why it is not surprising that some people want to consolidate their debts. Most of them owe more than one. It can either be multiple credit cards debts or a combination of different types of debt.
Of course, deciding to consolidate several debts is easy to do. But the question is, can they afford it? Among the other debt relief options, this one will not give them debt reduction. The consumer will still end up paying for the balance as a whole. This is why there are those who wish to find the strategy that will allow them to consolidate their multiple debts for free.
Fortunately, there is an option that will allow them to do this – a debt consolidation loan.
Debt consolidation loan helps combine several debts for free
When we say that debt consolidation loans can combine debts for free, that means they do not have to pay a fee to avail of it. This option is not like debt management or balance transfer. With the former, you have to pay the credit counselor a monthly fee. For the latter, you have to pay a balance transfer fee – which is 3% of the balance that you will transfer.
With a debt consolidation loan, you do not have to pay a fee. But while it is the cheapest compared to the other options, that does not mean it will not require anything from you. It may not cost you money to get approval for a debt consolidation loan, but you do have to qualify for it.
There are two important qualifications to be able to use this strategy to consolidate several debts for free.
Good credit score
Debt consolidation loan and your credit history have an effect on each other. It all starts when you apply for the loan. You need a good credit score if you want to have the best terms and interest rate on the loan. A good score means your credit history shows that you are good at paying back what you owe. It proves that you know how to handle debt and that you can be trusted with it. That is what will prompt the lenders to give you a low-interest rate. That will help you save a lot of money when you start paying back the loan. The higher the interest, the more you have to pay. If it is lower, you do not have to pay as much.
Of course, when you do get the loan, you have to make sure you can pay it back. The debt consolidation loan will affect your credit history if you are not consistent with your payments. If you let it destroy your credit score, then that would have been the cost that you have to pay for when you consolidate several debts through a loan. If you really want to make this free, then you need to do it properly.
Source of income
Another qualification that you need to meet is to have a stable and secure source of income. More than a good credit score, you also need to have the means to pay off the debt consolidation loan. Your income should not just be enough to cover your basic needs and debt payments. It has to be stable – meaning you have to be sure that your income will be the same for a very long time. A debt consolidation loan usually takes more than a year to completely pay off. If your income is not stable, you might end up losing it in the midst of your payments – and that is never a good thing.
Tips to succeed at debt consolidation loan
Although this repayment program can help you consolidate several debts for free, it will still require a lot of work from you. It is important to keep in mind that all you did was to restructure your repayment plan. When it comes to really paying off your debts, you still have to accomplish that.
According to reports, a lot of people have included paying off credit card debts as one of their New Year’s resolutions. Debt consolidation loan is a great way to make this happen. It can be a great tool that will help you achieve debt freedom – as long as you stick to your payments and you complete it.
Here are some tips that will help you succeed in your debt consolidation efforts.
Borrow only what you need
Start by borrowing only what you need. Some people choose to borrow more than what they need to consolidate debt – just so they have the extra cash to use on something else. If you are really intent on getting out of debt, you have to make sure that you will not add to it. When you decide to use debt to pay off your multiple debts, it has to be the exact amount that you owe. Otherwise, it will increase the amount that you have to pay and it might make your credit score dip a little.
Prepare a repayment plan
You want to prepare the shortest and most affordable repayment plan that you can create. If you want to save money on the loan, you want to pay the debt consolidation loan faster. This will help you save on the interest that you will pay on the loan. Of course, you should also consider the other expenses that you need to meet. You want to be comfortable with your lifestyle even while you are paying off your debts. Your comfort would allow you to stay motivated as you slowly pay off what you owe. If you are feeling restricted, that can make you resent your debt payments and might end up frustrating you enough to quit paying off what you owe.