How to apply for credit consolidation loan

Debt consolidation could be a good way for you to get out of your obligations. To know certainly, you must understand the process and how it could work for you.

First, debt consolidation combines several credit card debts, loans with high interest and other debts into one monthly payment. The process should provide a lower interest rate at the overall rate you pay on existing debt. This can help you save money on interest and reimburse debt faster.

Credit scores count

A strong credit score will allow you to qualify for lower interest rates that make the debt consolidation consolidate. If your credit is slowed down and the only loans for which you are eligible are personal interests with a strong interest, you will not save enough money to make the strategy in force.

Lay the foundation

Before applying for a credit consolidation loan, it is also intelligent to develop a plan to repay your obligations and change your expense habits to be certain that you can make monthly payments. If you have too much debt, the monthly payment you had to do could be unaffordable. Set a household budget together indicating how much you earn every month and what you spend. Once you have calculated how much you can afford, you can determine if the plan will work for you.

Types of debt consolidation

One is a balance transfer, which rocks the high interest debt of credit cards, loans, sales cards and another unsecured debt to a credit card with a low price percentage promotional (APR) . Make monthly payments on a low rate debt can help clear the balance earlier.

For example, if you have a credit card with a balance of $ 3,000 and April 18%, you would encourage $ 300 in charge if you have cleared this debt with 12 monthly payments of $ 275.

Say you transferred this balance to a map that includes zero April introductory percentage for a year on balance transfers. This card company probably would probably charge a tax of about three percent of balance. If you have made the same monthly payment of $ 275 on your new output balance of $ 3,090 over 11 months with a last payment of $ 65 in the last month, you would save $ 210 in accusations of interest.

Personal loan

Another form of debt consolidation is a debt consolidation loan, in which your current obligations will be folded in a personal loan with a fixed monthly payment. This strategy makes no sense if the interest rate of your loan is lower than the average rate of existing balances.

Estate

Yet another form of consolidation is a real estate loan. If you have a home, you can use equity – the difference between what you need on your mortgage and the current value of the house – in the structure to consolidate your debt. You reimburse the loan with monthly expenses, usually at a fixed rate. In the meantime, you can use the real estate loan to pay for your other debt and more expensive.

Of course, the risk is that if you fall behind in your loan payments, you may lose your home.

401 (k) ready

If your employer allows you to borrow against your 401 (K) plan, you can also refund debt. The disadvantage is that if you do not repay your loan on time, you will have to pay taxes. This has a 10% anticipated withdrawal penalty if the withdrawal is made before your age of 59 and a half.

You should also remind you that your 401 (k) is supposed to be for your retirement. When you remove funds from this fund, it subtracts the amount of money you will have for this season in your life. You must decide whether the erasure of your high interest debt is worth the reduction.