Taking out a debt consolidation loan is supposed to be a vital decision and must not be taken without adequate deliberation and proper planning. Before applying for a debt consolidation loan, one must consider all the viable alternatives, determine how the payments would be done, and ensure that he is able to have access to the best available rate of interest. Here are some of the things you must do before applying for a debt consolidation loan.
Consider Some Other Alternatives
Sometimes, you could end up paying less in terms of interest by using other alternatives of a debt consolidation loan. Credit cards offering 0% APR precisely on balance transfer may be letting you transfer all your current credit card balances directly to your new card. All through the introductory period, it could be possible for you to make payments for reducing your balance without actually accruing interest. Moreover, another viable alternative could be the local credit unions that may be offering certain lower interest loans. You must opt for a debt consolidation loan only after proper research and homework. You must understand exactly how you would be benefitted by taking out a debt consolidation loan when you are under massive debt pressure.
Chalk Out a Budget & an Effective Repayment Plan
It is essential to do proper planning and come up with an effective budget in order to avoid penalties, missed payments, defaults etc. and to make all the repayments as per schedule once you have taken out a debt consolidation loan.
You must scrutinize you present debt amount by listing out each and every debt including all your student loans, credit cards, car loans, and some other existing accounts. You must monitor your spending to assess exactly where your money is diverted every month and effectively identify areas where you could and you need to cut back. You must compare all your spending and your debt obligations for creating an effective budget and for accurately determining the amount you could pay toward your debt repayments every month in a realistic manner.
Once you have determined the accurate amount that you could be sparing every month toward a debt consolidation loan repayment, you could be effectively determining the loan agreement terms. The amount you would be requiring to pay off your debt consolidation loan will actually depend on the precise amount you have borrowed and the number of years you would be taking to repay it.
Look for the Best Quote
You must compare the quotes provided to you by your shortlisted lenders. Only after a thorough evaluation, you must opt for the best terms and the best interest rate. Most lenders provide rate quotes that are regarded as soft inquiries and so there is no adverse impact on your credit report or the credit score for that matter. During the time of final approval, you would be doing a hard inquiry so it would be projected on your credit profile. In case, you have already done a number of hard inquiries within a period of 45 days, it would be assumed to be rate shopping and your credit report would show only one credit inquiry.
Stay Clear of Scams
A debt consolidation loan is certainly a legitimate way of getting rid of debts. However, you need to stick to the well-established, renowned, and trustworthy lenders only. While shopping for the loan, stay alert and identify red flags such as guaranteed loan approvals, aggressive salespeople, demanding upfront payments even before the loan approval, requests for access to your bank account to enable automatic transfers and withdrawals etc. or even promises of super-fast solutions.
Just before applying for the debt consolidation loan, make a resolution to avoid any other new debt in the near future. An effective debt consolidation loan would be wiping the slate clean. You would be getting an opportunity to start afresh. Even though you are quite tempted at times, do not even think of creating a new debt that you would require paying along with the debt consolidation loan.