Questions You Should Ask Before Selecting a Debt Consolidation Program

Are you juggling multiple payments and monthly bills that are getting too hard to manage? The truth is that dealing with debt can be stressful and overwhelming. If you feel that you are behind on a lot of payments from your personal loans, credit cards, and store cards, a single debt consolidation payment plan can be the right solution to ease your stress.

Opting for a consolidation plan can pay off all your unsecured debt by combining all payments with a singular debt consolidation loan or balance transfer credit card that comes with a relatively lower interest rate. As a result, you will end up making a single payment each month and manage your finances effectively.

But, before you decide to opt for this type of plan, it’s critical to get professional advice to understand if it can benefit you. Here are some critical questions to help you make the right decision:

Is Debt Consolidation the Only Option to Manage Debts?

You can manage unsecured debts using three main options – debt consolidation, debt management, and debt settlement. The main reason to opt for consolidation of debt is to simplify the bill payments process and avail a lower interest rate.

 On the other hand, debt settlement is a solution when you cannot make payments. In such cases, debt settlement companies can offer to negotiate on your behalf to settle your debt accounts with a lower lump sum payment. Finally, debt management solutions offer a comprehensive solution to assess your current financial health and then work on the best repayment solution that fits your budget.

How Does It Work?

Debt consolidation involves taking a loan to handle multiple outstanding balances. For instance, if you have four different debts from a student loan, credit cards, personal loan amounting to a total of $8000, you can apply for a loan for that amount. If your request gets approved, you can pay off all your balances and, subsequently, make one payment against the loan.

How to Know If I am Eligible for Debt Consolidation Loan?

The eligibility requirements for the loan vary with each lending institution. However, these institutions mostly check your credit score to assess your repaying capabilities before approving the loan. It’s possible to obtain consolidation loans for both secured and unsecured debts. Meeting with a debt specialist to assess your debt profile is a great way to know if you are eligible.

When Should I Consider Debt Consolidation?

When you have too many debts to handle, it may get cumbersome to keep up with payments. In this case, it may be a smart move to consolidate your debts to organize payments and attract a lower interest rate.

Consolidating may offer a temporary quick fix to manage payments without hampering your credit score. As your debt accounts get cleared and paid in full, you still have to make timely payments on your consolidation loan to consistently maintain your credit scores.

Which Consolidation Plan is the Best-fit for my Debts?

There are three products you can consider to consolidate your debts:

1. Balance Transfer Credit Card

This product can transfer all your credit card outstanding balances. Several balance credit cards offer 0% APR for up to 21 months with a transfer fee of around 3%. It’s best to pay it off within the prevailing zero-interest period. However, if you are late, you may incur a higher interest rate. Besides, any new purchases you make with the card may carry a different interest rate than the balance transfers.

2. Personal Loan

Personal loans usually come with a fixed interest rate of more than 0% and often with an origination fee. It can be paid off within one to seven years, depending on the loan’s prevailing terms and conditions. Setting fixed monthly payments aside for a personal loan can help you plan your budget and make timely payments without the temptation of carrying an additional credit card.

3. Home Equity Loan

A collateral-based consolidation loan that involves using your home as collateral to secure loans. It may attract a lower interest rate than a personal loan. However, if you default, your home may be foreclosed.

How Much Does it Cost?

The cost of debt consolidation plans varies with the type of product, interest charged, upfront costs, and ongoing fees. Consider the costs of each plan before selecting the right one that fits your budget. It’s essential to understand the terms and conditions to know the complete costs.

When deciding to opt for consolidation, understand the difference between how much you are liable to pay in interest for the new loan, and how much you will pay if you don’t consolidate.

While there is inherent value in opting for a debt consolidation program, it makes sense for you to consolidate only when you are aware of all the details and potential outcomes. Consider approaching the right credit settlement agency that can help you make an informed decision and put you on the right path to becoming debt-free.