Did you know that at the end of 2017, the total household debt rose to $13.5 trillion for the US alone? That’s a little scary.
For five years in a row now, this crises has continued to grow here in the states. It’s no wonder then that people are looking for ways to consolidate their debts.
For those of us who are in a financial pickle, debt consolidation loans are something that we may want to consider.
However, it’s important to know the ins and outs of this type of settlement. With that in mind, here are ten things you should be aware of when looking into a debt consolidation loan.
1. Know If It’s Right for You
The first thing you should be thinking of is whether or not debt consolidation is the right thing for you. It may not be the best solution for everyone.
It’s tempting to reach out to this type of lending automatically, especially if your debt has become unmanageable. But take a little time to see what other options might be available.
You don’t want to make things worse.
2. Know Which Type of Loan to Get
Once you’re sure that a debt consolidation loan is for you, look into the types of loans you can go for.
Will you choose secured or unsecured? Or will you go for a payday loan?
Secured loans mean you put up collateral, such as your home or car. An unsecured loan doesn’t require collateral, but will depend on your ability to make repayments.
3. Know How Much You Need to Borrow
This sounds obvious, but it’s worth mentioning anyway. Before you go all in, make sure you know exactly how much you need to borrow.
I need to emphasize the word “need” here. There is a difference between how much money you need to borrow and how much you want.
Tallying up your debts will give you the best figure. You also won’t risk borrowing too much if you know what you need.
4. What’s Your Credit Score?
Checking your credit score is also a good starting point when considering a debt consolidation loan.
Knowing where your score and your report stands will not only help you get a handle on what your finances look like, it will also give you the opportunity to find and correct mistakes.
Of course, this might not be possible for people who are desperate. But there are options available for debt relief that don’t require credit scores (or if you have bad credit).
5. Can You Afford the Repayments?
This kind of ties into knowing whether debt consolidation is right for you. Even if you are 100% certain this is what you need, do you know if you can afford to pay it back?
Using a loan calculator will give you a rough estimate of how much you can expect to start paying back each month.
Know your limits. If you can’t afford the repayments, you may have to consider other alternatives to help you.
6. Be Aware of the Costs
Going off that, make sure you do your research!
As well as being comfortable with the repayment plan, have you looked into the different interest rates and fees?
Fees may include late fees, origination fees as well as a number of other things on top. It’s important that you get as much information about the costs as you can before you decide who to go with.
7. Choose a Reputable Lender
Your personal information is delicate. Be cautious of this when you’re preparing to hand it over during debt settlement.
As well making sure you find the right lender for you (they’re all different and have varying debt management programs), you need to make sure the company is legitimate.
Do they use a personal email address for correspondence (i.e. Gmail) or is it a company domain? What are other people saying about this company?
Don’t be frightened off by this line of thinking. But do be very cautious of who you pick. Make sure you are picking a reputable lender.
8. Does the Company Have Customer Service?
Not a lot of people think about this one. But it may be important to you to be able to get a hold of your lender.
This could be a deal breaker for some. A lender may have fantastic rates and an award-winning website, but do they have customer service?
Receiving your loan is not the end of the transaction. If you need advice or you have some questions about your borrowing, you need to be able to speak to a professional (over the phone preferably).
9. Know About Balance Transfers
If you have credit card debt that you can’t handle, one popular way to consolidate it is to opt for a balance transfer.
This means you transfer the debt to another credit card which offers zero interest rate. This can really help you pull yourself out of a tricky financial situation.
However, make sure you do some research into it. A zero interest rate credit card sounds wonderful, but they don’t last forever.
Make sure you understand what the terms are after the introductory offer and make sure you can a) afford the new fees, or b) pay off your credit card before the offer expires.
10. Decide If You Want Loan Insurance
Not everyone needs to opt for insurance. But it might be something you want to know about anyway.
When choosing debt consolidation loans, some lenders will offer things like unemployment insurance if you lose your job. They might also offer life insurance in case anything goes wrong.
Just be knowledgeable about whether this is something you want and can afford.
At the end of the day, the purpose of debt consolidation loans is to get you out of a situation you can’t handle.
If you’re in a bind and you feel that you do need financial help, this type of debt settlement program can be very useful. But make sure you do your research first before you go in for it.
If you would like more information on debt consolidation, click the link here.