How to Choose a Credit Consolidation Loan
Debt consolidation loans can be used to pay off your credit card debt. But, these loans vary in amount, repayment period, and interest rates. When you're ready to get a new credit consolidation loan, make sure you shop around for the best loan.
What is the debt consolidation loan interest rate?
The interest rate on a debt consolidation loan is one of the primary deciding factor. It will affect the cost you pay for the debt.
The higher the interest rate, the more you pay for the loan. Unfortunately, you may not qualify for a low interest rate consolidation loan if you have a negative credit history.
Do you qualify for a debt consolidation loan?
If you're behind on your credit card payments, your credit may have gotten too bad to take out a loan to consolidate your debts. Unfortunately, if you don't qualify for a loan, you'll have to seek other options to deal with your debt.
Is this really a new loan?
Some debt consolidation programs operate more like consumer credit counseling and combine your monthly debt payments rather than giving you a completely new loan. Once you've confirmed that you're actually borrowing a loan and not enrolling in a debt management plan, make sure you completely understand the terms of the loan and whether your existing debts will be repaid immediately or over a period of time.
What is the repayment period?
Debt consolidation loans often lower your monthly payments by lengthening your repayment period so your debt payoff time is delayed.
You could take advantage of the lower payments in the short term while you get your finances back on track. Then, once you're able to, pay off your debt consolidation loan more aggressively.
What are your alternatives?
You may be able to receive debt relief through consumer credit counseling, which is often a better option than taking out a new loan.
You might also be able to make your own debt repayment plan which may include negotiating lower payments with your creditors. Weigh all your options before taking out an additional loan.
Is this a legitimate debt consolidation loan?
There are so many credit and debt consolidation scams out there. You can easily be fooled. Make sure you're borrowing from a legitimate bank. Avoid paying upfront fees to secure a loan. Trust your instincts and avoid any loan or program that doesn't seem right.
Can you afford the payments?
The goal of combining your debts with a debt consolidation loan is to make your debt payments more affordable. Before you agree to the loan, make sure the monthly payments fit comfortably in your budget. If you can't afford the monthly payments, you could run into more trouble in the future.