Getting out of debt isn’t easy. Sure, there’s the pain of having to tighten your belt and save enough to escape the “debt trap”. But there are also ‘right’ moves you can take to make your savings and efforts that much more effective.
One of the smartest moves you can make when it comes to reducing your financial liabilities is debt consolidation. Not only does this help you keep track of your monthly dues much more easily, it also helps your credit history.
If you’re like many people, student loan debt is one of the two or three biggest financial responsibilities that you’re tackling at the moment (with the others being, invariably, a car note and mortgage). After reading this short article, you’ll have a better idea of the steps you need to take before you consolidate student loans.
Take a Look at Your Credit History
This is the first, easiest but possible most important step.
Thankfully it has been made almost effortless thanks to certain federal laws. Most importantly, one law in particular mandates that you are entitled to one free credit report from all three major credit bureaus every year.
Why should you get all three, you ask? Because this helps you cross-reference them and locate any inconsistencies on your file. You’d be shocked at how many people have wrong information printed on their credit reports.
Rectifying these could very well raise your all-important credit score, which is a single, three-digit number that tells people, at a glance, about your creditworthiness. This number determines how favorable are the interest rates you can get from lending institutions such as credit card companies, home loans, personal loans, auto loans and many others.
Plan Before You Consolidate
Once you have the invaluable information from your credit file at hand, and you’ve been able to make sure there aren’t any mistakes, you can more accurately assess your financial situation.
Your next step is to meticulously jot down all the balances you owe – even on loans you don’t plan on consolidating for whatever reason. Separate these into two columns, and calculate your current monthly payments and separate interest rates.
The bills with the highest interest rates have got to go; these are the ones that keep people paying year-after-year, as they are a drain on resources and hardly make a dent in the principal. Consolidating these can make a big difference in your financial future.
Choose the Best Consolidation Available
You may already have an offer in mind – especially if you have student loans and can take advantage of any previous financial relationship with a lender. However, make sure you check with your credit union, banks in your neighborhood, and online lenders such as the Student Loan Consolidation Team and Capital One Bank.
Research the website of the online lender you choose, and locate the requirements section to get an idea of what you’ll need before you apply. This is only to save you time, as some lenders won’t even consider you if you have a credit score below the “Fair” line.
Don’t let that put you off however. There are plenty of lenders out there who are will to accommodate, fair or even bad credit scores – so don’t stop looking!
The Application Process
If you’re going with an online lending process, starting the application process is as easy as navigating to the website and finding the “Contact Us” section. Generally, you’ll receive a response within a single business day after you fill out the very short information fields and send it off.
There’s also a good chance that you get an answer instantly – you’ll be informed about the following steps. If you’re turned down for a debt consolidation loan, you’ll also be informed as to why. You can learn a lot from this; in the same way as you can when a credit card company declines your business.
Even if you’re turned down, you can approach the same lender again and explain your intention to employ the loan to consolidate debt, instead of using it as a personal loan – they may be more open to reconsidering.
The Debt Consolidation Process
You can breathe a sigh of relief once you’re approved, as you are now on your way to a measure of financial freedom. Debt consolidation helps you finally put an end in sight to high-interest bills, so that you can look forward to letting go of the liability – all while improving your credit score.