How to Consolidate Loans using Step-by-Step Instructions
Consolidating a loan literally means to combine all your loans into a single lower interest loan. Obviously, the lower interest will lower your monthly payment and give you the financial flexibility that you need to feel secure in your finances and possibly allow you pay off all your debt! It will also help you sleep at night!
Difficulty Rating: Moderate to Severe
Step 1
Stop using credit cards, period! This is the most important step and also the most difficult, but just stop using them until you can sort everything out and see how much money you really have to spend each month. It's also good to keep your credit history in good standing while shopping for a loan and a lot of activity of your credit report will affect your credit score, so just stop using them for awhile!Step2
Tell your credit card companies your plan, just pick up the phone and give them a call. Once you tell them you want to consolidate your debt, they might even have a good program of their own, but shop around, check all your resources for the best loan fees and pick the lowest!Step3
This should be an easy step, once you have list of potential financial companies, just pick the one with the best deal and start the application process. Obviously, start with your highest interest credit cards and then consolidate your lower personal loans. The financial company you choose will be able to help you decide which loans to pay off.Step4
Don't get catch up in the application process and over pay on low fees! Make sure you pay close attention to how much you're really paying to get the loan. Besides the interest rate, there are hidden costs such as upfront and recurring fee, points (secure loans), closing costs and also tax implications. Try to find a bank that has very little, if no costs, to getting your debt consolidation loan, but will depend on your credit report :(Step5
Calculate the total cost of the loan by multiplying the monthly payment by the number of months in the loan and then add in all the fees or points you'll have to pay. Check the lender's quote against the figure you calculated, there should be no difference, if there is ask the lender why?Step6
Stop and take a minute to read the loan contract. Verify and double check the agreed upon loan rate and don't sign if there is a disagreement, you can always pull out of the loan before you sign it. If everything looks good, the go for it and sign the loan papers!
When is Debt Consolidation Necessary?
It's very easy to get catch in the credit card trap! I know I've done it and countless other Americans have too. Debt consolidation may seem like the best solution, however, sometimes debt consolidation isn't necessary, or even a good idea. The Wall Street Journal reports that the average American now holds a total credit balance approaching eighteen thousand dollars. Why haven't most Americans turned to the debt consolidation approach sooner. Obviously, once all your debts reach a size and number where speedy resolution becomes difficult, then it just makes good sense to examine whatever alternatives exist to resolve them. However, it's one thing to take a look at debt consolidation and quite another to jump blindly into the first program offered to you! Debt consolidation may be a solution, but each of the various programs will contain its own share of negative attributes. I haven't really answered the question of when debt consolidation becomes necessary, I leave that exercise up to the reader. However, rest assured there are a lot of good debt consolidation companies out there, just shop around and if you think you're ready to make the plunge, go for it!