Using the best debt consolidation loan is a great strategy to get out of a tough credit situation. It makes your life easier because it restructures your repayment plan. It simplifies everything by combining all your debts under one loan. That means you no longer have to monitor several payments each month. You just have one monthly payment to think about. This makes the whole debt relief process less stressful.
Since your debt relief program is no longer stressful, you can focus on other things. For instance, you can set up another financial goal. Or you can concentrate on earning more money so you can make bigger payments. That will help you get out of debt faster.
This is probably why a lot of people are borrowing personal loans. According to statistics, its volume rose to $120 billion, making it the fastest-growing consumer-lending product in the US. While personal loans can be used for various reasons, one of the most common is debt consolidation. This debt solution is considered to be one of the most popular and effective options to get out of debt.
Of course, that does not mean you should apply and use it recklessly. You need to make sure that you are doing it correctly. To do that, you have to make sure that you are choosing the right one.
5 tips when choosing the right debt consolidation loan
When choosing the best debt consolidation loan, it is important for you to scrutinize both the lender and the terms. You should also make sure that you are looking beyond the actual debt solution. This debt relief strategy, although it primarily deals with your credit, can also have a huge effect in your financial future. This is why it is important for you to implement it correctly.
Here are 5 tips that will help you do that.
Check at least 3 options
Never go for the first lender that you will encounter. You need to have at least 3 options before you make a final decision. Check out their requirements and research reviews about them. Make sure they will allow you to get a quote without commitments. Look at the interest rate, fees, etc. Based on one study, consumers admitted that the interest rate and online applications are among the most popular reasons to choose the best debt consolidation loan. These are good areas to start. The customer support of the lender is also something that you might want to check. Compare these lenders so you can determine which ones can help you reach your ultimate financial goal.
Compare the same type of lender
If you are considering an online lender, make sure you compare it with other online lenders. Do not compare it with traditional banks or credit unions. That will make it harder for you to get the right comparison. Even with the details of the lenders, you have to be careful with how you compare them. Sometimes, one will offer you fixed rates while the other will offer variable rates. You have to get to know the whole picture so you will get a more accurate comparison.
Avoid lenders that will provide loan offers without a hard credit inquiry
A hard inquiry on your credit report can have a negative impact on your credit score. That can affect the final interest rate that will be used on your debt consolidation loan. Since you will be checking out 3 or more lenders, you do not want 3 or more hard inquiries. Make sure that it is clear with the lender to only conduct a soft inquiry. That way, it will not have a negative effect on your score – regardless of the number of loan offers you will get.
Consider the fees and not just the interest
The best debt consolidation loan does not automatically mean you have the lowest interest rate. Sometimes, the low rates come with high annual fees or origination fees. To be smart with your debt consolidation loan choice, you have to consider the whole cost. That means getting the list of all the fees and how it relates to the interest rate. You should also consider the penalties and charges that you might encounter. How much is the origination fee? Are there prepayment penalties? Consider all of these and do not just focus on the interest rate.
Take the time to read the fine print
Finally, you have to read the fine print. This is where you will get all the information that you need about the loan. Admittedly, this can be a boring and tedious task. But it is necessary. It will help you avoid penalties and charges in the future. It will also lessen any risks involved in the debt consolidation loan.
How to maximize your debt consolidation loan
Borrowing the best debt consolidation loan does not end with the approval of your application. You need to implement certain habits that will ensure the positive effects on your financial future. Here are two ways you can maximize your debt consolidation loan.
Opt for the shortest repayment plan
Some people would opt for the longest repayment plan so they can get a lower monthly payment. Unless this is really necessary, you might want to stick to the shorter repayment period for your debt consolidation loan. If you can afford to make bigger payments it is a smarter move to get the shorter plan. That way, you can get out of debt faster. Not only that, you will save money on the interest.
Stop borrowing money
Another thing that you have to do is to stop borrowing money. At least, while you are in the midst of paying off your debt consolidation loan. You want to make sure that you will not add to the amount that you have to pay back. Once you have paid a significant amount back (or the whole thing off), only then should you borrow again. Just make sure that you will plan the use of credit and will always have a way to pay it back.