Everyone can fall into financial difficulty every now and then. With an uncertain global economy, more people are falling into debt and repaying all bills is getting tricky. If you have multiple bills to repay you will agree that things can get out of hand. It is no wonder that most people with multiple bills end up defaulting. This leads to further financial turmoil as they can’t access any more financing from financial institutions.
Worse still, with poor credit, you have to pay higher interest rates even when accessing other services such as insurance. This is where a debt consolidation loan can help. With debt consolidation you will bundle all your debt into a single package by paying off your small loans. This is a third party arrangement where a lender will buy your debt and offer a single loan which is easier to repay.
If you have been struggling to repay multiple unsecured loans, it is time to consider debt consolidation as a way out. While the way out of debt is through better financial management, it is important to consider the hassle that comes with dealing with multiple loans.
Here are some of the things you need to know about debt consolidation before making the decision.
- Debt Consolidation Involves a New Loan
Most traditional lenders are not likely to offer unsecured loans especially if your credit is poor. Luckily, there are credit agencies that provide easy access to debt consolation loans to struggling consumers. In most cases you already have a personal loan with your bank and they might not be keen to add to your debt. With a credit agency, you will get a new loan which will be used to repay your small debts. The new loan will be repaid through flexible monthly repayments.
- Debt Consolidation and Your Finances
Dealing with debt is a taxing affair and for most people it is an ever ending cycle of gloom. If you have multiple bills to repay, it is easy to miss some and this will lead to default. Such a situation is immediately registered in your credit rating. Handling your finances will also be tricky if you have to deal with multiple loans every month. You will end up operating without a solid plan which draws you deeper into a financial rut. By consolidating your debt, you will find it easier to manage your income. A single repayment allows you to manage a simple budget.
- Debt Consolidation and Credit Rating
One of the greatest concerns for borrowers is poor credit rating. With more people defaulting, especially on credit card debt, the situation is even trickier. With a poor credit score you cannot access financing and many other services. This means your financial situation will get worse over time. For instance, if you are buying insurance, you will have to pay higher premium rates. When you buy a debt consolidation loan and start making prompt repayments, your credit rating starts improving. If you are looking for a loan in future, it will be easier to access the service, and at a better interest rate.
- Debt Consolidation Counseling
If you are deeply in debt it is likely you need some financial management skills. Of course no one wants to accept they have a weakness in handling their finances, but with debt counseling, you will have taken a big step towards financial freedom. You will learn how to budget based on your current income and this ensures you will not be entrapped into more debt. More importantly, you will understand how to track your finances. Your debt counselor has the experience necessary to get you out of the rut and you should leverage this to improve your finances.
- How to Get a Debt Consolidation Loan
There are many debt consolidation companies around and credit counseling agencies which can help you access the best internet rates. Before using any agency, ensure you understand what you really need. Start by adding up all your debts to know how much money you need. Compare different companies and the rates they are offering based on how much you need. It is important to confirm exactly what service you are getting to avoid being ripped off. Confirm from the agency that you don’t need debt settlement or management, but a loan to repay off your other debts.
- The Right Debt Consolidation Service
With so many people in debt, it is not surprising that many debt consolidation services have come up. Traditional lenders are now competing with different credit agencies to offer debt consolidation loans. It is important to compare these companies based on their reputation and the internet rates they offer. Start by visiting comparison websites where you will find reviews and testimonials by other clients. The better Business Bureau (BBB) also provides a reliable source of information.
- How to Avoid Debt Consolidation Scams
The internet is fraught with risks when it comes to financial services. There are complaints about debt consolidation scams which charge you but offer no service. If the company is too pushy or aggressive it is highly likely to be a scam. If you didn’t call the debt consolidation company, avoid revealing any details about your debt because they will use this as bait to lure you into shady debt settlement negotiations. Online scammers will also ask for your personal details and when they do, you should stop contact immediately. A good debt consolidation company should be registered with the National Foundation of Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCA).
In order to enjoy the benefits of debt consolidation you have to consider these factors and only take a loan that fits your needs. It is also important to avoid further debt in order to build your credit rating once you take a debt consolidation loan. Once you have received some counseling, make sure you implement the skills you learn to guarantee you don’t find yourself in the same situation in the future.