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Are you feeling overwhelmed by the bills arriving in your mailbox each month? Combining what you owe through a debt consolidation loan is a good way to get clear those arrears with manageable monthly payments. Before you take out such a loan, here are some things to consider.
Determine Your Goals
If you’re on a tight budget with little money to spare, look for a loan with a lower monthly payment, even if it means taking longer to pay off your debts. Keep in mind that you can always pay more at any time. According to Kevin Cohee, the wisest way to get out of debt fast is to use your freed-up cash each month on extra payments, getting rid of your debt even faster.
Another way to get out of debt quickly is to make larger payments over a shorter time. Think of being debt-free in three years rather than five. That’s what a higher monthly amount can do for you.
Know Your Credit Score
Banks and other lending institutions use your credit score, a three-digit number, to determine whether it’s safe to loan you money. This mark rates how much debt you have and whether you have a history of paying back what you owe on time. If you have low debt and make prompt payments, you will have a high number. If you are behind on your payments it will be lower.
It’s important to make sure you have a good credit score before you apply for a debt consolidation loan. A low credit number can hinder your chances of qualifying, so be sure to check it and, if needed, fix it before you apply.
Also, keep in mind that taking out another loan will lower your credit rating for about a year. That three-digit number will also be negatively impacted any time you fail to make a loan payment, so be sure to make your payments on time.
Shop Around
Different lenders have different rates, so it behooves you to check around and find the best rate and terms for your budget. Not only should you check with your bank, but also look online to make sure you have the best deal.
By knowing what kind of payments you can afford, improving your credit score, and shopping around, you can find the debt consolidation loan that suits your budget. Before you know it, you’ll be debt-free and looking forward to those daily trips to the mailbox.
