loan consolidation

7 Important Factors to Consider Before Consolidating the Loans

Posted on January 9, 2015 · Posted in Debit And Credit, Finance, Trading Loan And Mortage

With huge debts and unmanageable repayments, you might be looking for consolidation loans to ease out the financial crisis. To support you, there are so many companies that are eager to help in consolidating the loans to reduce the monthly payments by lowering the interest rates thereby getting you out of debts in a short time. Consolidating the high interest loans and debts due to credit card usage into one loan with comparatively lower interest rate will make the payments easier. However, if the deal is not perfect, there are chances that you aggravate your financial crisis.

As for home equity loans, many of the borrowers lose the homes after committing to consolidation loans. This is because of many factors namely high interest consolidation loans or taking more than what is required and spending the loan amount for unwanted expenses. You have to approach the offer with utmost caution. The suggestions here might be of some use to those who are looking for consolidation loans.

  1. Understand the importance of credit score: It is necessary to get the credit report and your FICO score from anyone of the major credit bureaus. The credit score indicates your financial behavior and so the influence of credit score on the loan approval is great. Good credit score helps to get consolidation loans for lower interest rates. Reviewing the credit report carefully will help to notice the mistaken entries if any. Inaccurate entries affect the credit history and so it is suggested that you be specific about correcting the mistakes by providing valid documents to the relevant officials.
  2. All the available options should be considered before deciding to go for consolidation loans: If the purpose of consolidating the loans is just to save additional funds, it is better to keep away from the offer. You can instead consider clearing the debts one by one by prioritizing the higher interest loans. Making additional payments towards the higher interest loans will help to clear debts faster. This reduces the monthly dues towards debts.
  3. Discussing the issue with the lenders: You can talk to the credit card company to negotiate for a lower rate of interest. If you are not successful in the talk, you can think of switching over to a credit card with either interest free introductory offer or lower interest rate for a longer term. However, the rate of interest after the introductory period should be known beforehand to make the decision.
  4. Hiring the services of credit counseling agencies: You can get low cost services or free guidance from the credit counseling agencies regarding how to manage your debts and control your finances. Some of the credit counseling agencies might force you to enroll in a debt management program. You should not allow any such agency to force you register with debt management programs. While choosing the services of the credit counseling agencies, you should learn about the fees charged before hiring the services.
  5. Dispose unwanted items to settle a part of your debts: If possible, you can sell your valuable items such as vehicles or furniture to raise funds to meet payments towards your loans. If you have pending loan on your car and if the payments are not affordable, it is suggested that you dispose the vehicle and payoff the loan instead of defaulting on the loan. The vehicle might be repossessed if you default and this will lead to more loss.
  6. Your mortgage lenders can help you in easing out your stress. Since the lenders are particular about getting back the loan amount, you might be helped to come out of the crisis to manage the loan repayments. You might be allowed time to recover. The mortgage lenders might consider your situation and suspend your payments temporarily or might be willing to accept reduced amount of repayments for a specific period. It should be ensured whether there are additional charges for doing so. If you feel the fees are heavy, you can consider consolidating the loans instead.
  7. Life insurance can come to your rescue: If you have life insurance, you can consider cashing out against the value of the insurance policy. The loan amount is instantly accessed. Although the interest rates are lower, the tax implications should be understood while borrowing against the value of insurance policy. If you default on the insurance loan, the amount borrowed is deducted from the amount received at the expiry of the policy.