Before you can start looking for consolidation loans, you need to know how much money you can afford to put towards paying off your debt every month. The other information you need to be prepared with is your credit report, which is the main factor determining what interest rates you can get on consolidation loans. Obtain a copy of your credit report from one of the major credit bureaus, Equifax, Experian, or TransUnion.
Now you will be able to accurately compare consolidation loans according to your personal needs. If you are a homeowner, you may want to consider a home equity loan. Often, these loans will give you the lowest rates, because the lender has the security of your home as collateral. The downside to this is that if you default on the payments, you may lose your home. Make sure you know all the possible charges you may have on the loan, these may include but are not limited to; an annual service charge, points, closing costs, and prepayment penalties. Spend time comparison shopping for home equity consolidation loans, so you can find your best option.
If you are not a homeowner, or you feel putting your home on the line is too risky, there are personal consolidation loans available that do not require the collateral of a home. The rates on these consolidation loans tend to be higher, but if you take the time to discover your options, you can still get a low rate, especially in comparison to credit card rates. The average credit card has an APR (annual percentage rate) of 14.4%, and average consolidation loans have rates well below 10%. Don’t, however, assume that you will save money just because the interest rate is lower. When looking for consolidation loans, take into account any closing costs or other fees that may apply to determine if consolidation loans will actually help you financially.
When you are closing your loan, it’s easy to be tempted to extend the term of the loan so your payments will be lower. Don’t fall into this trap. Just like any other loan, consolidation loans eat up more interest the longer they last, and usually you will be granted a lower rate for keeping the loan shorter as well. Make the payment plan realistic, so you don’t fall behind and worsen your credit, but do pay as much as you can afford monthly towards your debt.
Consolidation loans can save customers thousands in interest on their credit card or other high interest rate debt. Also, consolidation loans improve your credit, especially if you make your payments on time. And it’s much easier to make payments on time when you have a single bill to pay, instead of a car loan and three credit cards, especially since you can even reduce your payments through consolidation loans if you need to, because of the lower interest rate savings. But if debt is a recurring problem for you, consolidation loans will not fix the problem long term. If you have a tendency to overspend on credit cards, rip them up and get a debit card. Meanwhile, consolidation loans can help you on your way to financial well-being.