Debt consolidation has helped many people escape the repercussions of too many credits or too many loans. It is a good way to beat loan deadlines and minimise the increasing interest rates on your debt. Qualifying for a debt consolidation may prove to be hard when you have a poor credit rating. One fact remains; debt consolidation is an easy way out of a financial crisis.
Here are some common facts about debt consolidation
Debt consolidation reduces your monthly payments
Essentially, when you seek a consolidation plan you are moving all your debts from multiple accounts into one large account. This makes the payment process easier for you. There will be less constraints and commitment on your salary since you will be making one large monthly payment as opposed to several payments in one month. In simple terms, it simplifies all your credit payments. Merging all your debts means all the terms are revised and worked into the one account.
You are going to pay less interest
In most cases, consolidating your debt lowers the interest rates on your loan payments. Think about it like this, you clear all your minor loans with a bigger loan with a different interest rate. Normally, loans with a higher rate have lower interest rate. You can enjoy this benefit more if you have a food credit score; lenders tend to favour individuals with good scores when it come to giving out loans.
Poor credit- no consolidation
Just like basic loans, if you have a poor credit score and a bad history you have a lower chance of qualifying for a debt consolidation loan. Bad history and poor credit is the symbol of late loan payments and pending loans. Most lenders won’t trust people with this kind of credits. If you are unable to make those payments, how will you clear theirs?
What are the repayment plans?
Most creditors will lengthen the loan payment when you take a debt consolidation plan. This means you will have more time to clear all your debts. This is one of the reasons you should consider a consolidation plan. You can lengthen the time of your debts and use that second chance to clear all of them.
Main types of debt consolidation
There are two ways you can consolidate your debt; using the secured plan and the unsecured plan. In the secured debt consolidation, lenders ask for collateral from individuals with a temporary job, low income and poor credit report. They will use the collateral as leverage in case you miss any loan payments on your consolidation. If you have a high income, permanent job and excellent credit history you will get an unsecured loan which means you won’t have to produce any form of collateral to receive a consolidation plan.
There are several ways to consolidate the debt
There is more than one way to choose from when you are consolidating your debts. You can ether use a credit, company, personal loan, debt management programme or home equity consolidation. In each method, you will get a professional advisor who will guide you on the best consolidation strategy.