Are you trying to get a debt consolidation loan approval? You are not alone. One report reveals that personal loans are considered to be the fastest growing financial product – at least when it comes to unsecured lending. And one of the cited reasons to borrow is for debt consolidation purposes.
Using this type of loan is actually a very effective and popular way to get out of debt. There may be people who even look at it as their first debt relief option. It seems like a logical way to improve your debt payment strategies. Among the benefits that you will get are a lower interest rate, single monthly payment, and even better terms and fees.
Of course, since this is still a loan, you need to qualify for it. Unless you get approval, you will not really enjoy the benefits that debt consolidation loans can bring to your finances. So if you are sure about using this debt relief strategy to get out of debt, you need to make sure that you have what it takes to get debt consolidation loan approval.
Qualifications to get debt consolidation loan approval
The qualification to get approval for a debt consolidation loan might vary. This will depend on the lender that you have chosen to borrow from. It is important for you to consider more than one lender to determine which of them offers the best loan for your debt situation.
While the details might be different, the general qualifications are actually the same. If you want to get debt consolidation loan approval, these are the things that the lender will check out.
While it is possible to consolidate debt even if you are broke, it might be hard to do it through a loan. If you want your loan to be approved, you have to prove that you can afford to pay it back. Obviously, that means having enough income to show them. It is not enough that you can show them that you are earning money. You need to prove to them that it is a steady and stable source of income. That it will be available for a long time.
Not only that, it has to be big enough to make your monthly payments a specific percentage of the income. After all, the lenders know that the income will be used on other expenses too – not just the debt payments. They have to make sure that you can afford to live comfortably and still pay off the debt. If not, there is a high chance that you will skip your debt payments in favor of paying for basic necessities. That is something that they will not risk. If you can prove that, then you are one step closer to getting a debt consolidation loan approval.
This is shown through your credit report. One of the things that they will look into is your payment behavior. If you borrowed money in the past, they will look at how you paid it off. Were you always on time? Or did you miss out on a couple of payments? These will affect the approval of the loan. It does not matter if you are earning a lot of money. If you are not responsible enough to pay back your past debts, it will be harder for you to get approval for the loan.
It was mentioned earlier that it is important for you to prove that you can sustain the whole repayment plan for the loan. This is where your economic stability will come into play. As of now, this might not be hard to prove. According to reports, 9 out of 10 workers are secure about their jobs. If you feel the same because you know that you will not be laid off anytime soon, then that is a good sign for the lender.
But that is not all that they will look into. They will also check how long you stayed in your job. If you are new, there is a greater risk that you will lose your job or get laid off. The lender will also check if you kept on moving houses. These are all signs of an unstable lifestyle so you need to make sure it will not affect your debt consolidation loan application.
To be clear, not all debt consolidation loans require collateral. If you have a good credit score, you can borrow an unsecured loan to help consolidate your debts. But if you do not have that, then offering collateral will help make your interest rate lower. It will also give you more money to work with – allowing you to consolidate a lot of debts. Of course, if you will use collateral, the lender will have to approve that as well. It has to have enough equity to cover the amount that you want to borrow. Even if your equity is $50,000, you cannot borrow everything, just a percentage of that.
What to do after getting debt consolidation loan approval
After you get a debt consolidation loan approval, do not think that the job is done. You still have a lot of things to do. Contrary to what you may believe, the approval is not the end of your debt relief program. Although all your original debts are paid off, you still owe the same amount of money. You just transferred your balance under one account.
This is why you need to make sure that you do not fall under a false sense of debt freedom. There is still a long way to go but it will be easier if you do the following.
Pay off your multiple debts immediately
As soon as you get the debt consolidation loan approval, you need to use the money immediately to pay off your debts. You want to do this as soon as possible because the longer the money stays in your hands, the more tempting it will be to use it for something else.
Have a repayment plan
Ideally, you should have a repayment plan before you get a debt consolidation loan approval. Planning the repayment will force you to look at your finances so you can determine if you can afford the future payments or not. It will encourage you to borrow only what is necessary. At the same time, it will also help you get the payments started after the loan is approved. This plan will serve as your guide as you slowly complete your journey towards debt freedom.
Revise your budget plan
To be successful at any debt relief option, you need to pay attention to certain budgeting tips so you can get to debt freedom easily. If you have a repayment plan, you need to check your budget plan to ensure that it will be aligned with each other. Your budget plan should support your repayment plan. If not, it will be hard for you to completely pay off your debts according to your repayment strategy.
Stop borrowing money
Finally, you should also stop borrowing money after you get the debt consolidation loan approval. You will not completely eliminate the use of credit. But you have to stop borrowing while you are still paying off what you owe. If you keep on borrowing, your debt payments will never end. It will always be there adding to the stress that you are already feeling. You can still use credit in the future but make sure that you know how to use it wisely. That way, you will never land in the same destructive debt situation again.