A debt consolidation loan can be a great way to simplify your finances and get out of debt faster. But not all debt consolidation loans are created equal. Anyone can follow this How to Choose the Right Debt Consolidation Service.
How do you know which debt consolidation service is right for you? And how can you make sure you’re getting the best interest rate and terms?
In this article, we’ll walk you through the process of choosing a debt consolidation service, and we’ll share some tips for getting the best deal on your loan.
1. How to Choose the Right Debt Consolidation Service
Choosing the right debt consolidation services plan for you is easy with a quick 6-step approach:
Step 1: Match Your Debt Amount
Paying off your debt may seem overwhelming, as you have so many creditors to pay. But an experienced debt consolidation advisor can help you prioritize and figure out what’s going to get you the fastest.
If you look at your debts in terms of principal and interest, the amount you can pay off most each month is called the debt-to-income ratio. To figure out how much of your monthly debt payment can go towards the principal, you need to calculate your actual interest rate and divide the amount of debt you have, including interest, by that interest rate.
A good rule of thumb is if your interest rate is higher than 8% you probably do not need a debt consolidation loan. If you target an interest rate below 8%, you may need to lower your interest rate after your debt is consolidated.
Finding out how much of your payment is yours and how much will go into interest is easy: You just divide your payment by the interest rate of the debt you want to consolidate.
Let’s take a look at an example.
The total amount of your debt, including principal and interest, is $45,000.
Your total monthly payment is $500.
The interest rate of your $45,000 debt is 6.5% because your minimum payment is $266.01.
2. Ways to Find a Debt Consolidation Loan
There are many ways to get a debt consolidation loan. While there’s a lot of talk about negotiated loans, many lenders are willing to forego extra fees to offer loans that work for consumers.
So, how can you find a loan to fit your needs? These are a few options:
- Ask your lender for a cosigned loan or a loan with advance payments available.
- Go to a credit union or bank that has participated in a consumer-focused label (CL), such as Discover your Future (DDF) or the National Foundation for Credit Counseling.
- Use a service like LendUp or LoanDepot. These three lenders are focused on providing consumers with affordable payment options and have a network of lenders who might be able to provide loans for your budget.
Here’s how to create a budget to make sure you’re getting the right loan.
Make a list and define each item on the list as to the money it takes including the cost of selling, mortgage, property tax, and utilities. While it’s easy to assume the numbers will be the same, just understand where those numbers come from and you will get a much clearer picture.
After you’ve compiled the list make a run at it from an assumed worst scenario.
3. Advantages and Disadvantages of Debt Consolidation
When it comes to credit counseling, debt consolidation, and simple debt repayment solutions, more variety has its disadvantage.
The drawback of being required to use a particular debt consolidation service is that it will scale your bill in the long term. It will be a more expensive option also.
If the debt consolidation is an off-grid transfer card kind, this might cause some unplanned and unexpected costs for your wallet.
Therefore, it is crucial to have picked a minor debt consolidating option via online data entry services that offer an alternative that not only simplifies the budget effectively but at the same time had the smallest interest rate as compared to the other debt relief strategies. However, not all online data entry services will look at your situation the same so make sure you buy the one that gives you the best rate on the lowest most suitable fund rate provided to you before you proceed.
Yours is also a chance to shorten the repayment standard period and thus you can reduce the repayment plan to 3 to 5 years.
4. Making Decisions Before Applying for a Loan
A credit counselor recommends making your decision before applying.
It is critical to the process of finding the best creditor for you that the lender actually ethically offers you a cash advance through various distinct debt consolidation providers.
To make sure you are getting to find the best deal on your cash advance loan, make sure you are only working with brands.
5. What to Look for when Evaluating Debt Consolidation Services?
When evaluating your debt consolidation options, there are several key aspects you should keep in mind.
First, make sure your loan’s terms are fully disclosed and transparent. If they are not, or if they include hidden fees and/or affiliate commissions, we recommend you research and compare loan quotes until you find a loan that has the best rates and terms.
There is also a wide array of services beyond the loan rate, like advertising fees, monthly fees, and the terms of your payment plan. We recommend doing a careful analysis of your options so you know where all the extra fees are being added to your loan.
6. Choosing the Right Investment Capital for Debt Consolidation
Choosing the right debt consolidation loan for your situation depends on a few things.
First, you need to understand how much money you need to save and how much your debt is costing you in interest and fees.
Next, you want to rely on a debt consolidation loan that has a low-interest rate and good stability.
Finally, you want a credit card reader to help you keep tabs on your debt. People who don’t have access to their car or their paycheck are known to buy their debt because it is more convenient than their other bills.
This convenience makes them less likely to keep on monitoring payments.
A credit card reader monitors the frequent purchase of your debts from within the app on your phone.
Plus, it keeps track of all the payments you make and detects automatic payments. It also provides you with outstanding bills, on-time payments, and other alerts.
When you consolidate your debt, the total statement amounts are added up and entered as one single monthly bill.
Having a careful financial plan is the difference between climbing the debt mountain and walking it up.
As Badwal points out in her article, being nervous about the interest rate or contract structure of your debt consolidation loan may prevent you from getting the most out of the debt consolidation service.
Having heart-to-heart discussions with your lender about these topics could really benefit you.
So make sure you have a solid plan for your credit consolidation loan before you start it.