Debt consolidation is a dream goal among long-time debtors. With good consolidation loan, we could get only a single loan that allows us to make one monthly payment. Unfortunately, bill consolidation isn’t an easy thing to achieve, especially if we have many high-interest debts. If we are not careful, it is actually possible that we will end up much deeper in financial difficulties. In general, the monthly payment of consolidation loan should be lower than the total of monthly payments of our previous debts. When seeking consolidation, we should make sure that we get the lowest possible interest rate. In general, we need to pay off our debts in less than five years so we can further focus on improving our finances through savings account. One thing that we need to consider is that we could lower interest rate if we have good credit score. It means that we need to consolidate our debts, before we actually fail to make monthly payments, causing reduction in our credit score.
There are things we can do to reduce the interest rates of consolidation loan. As an example, we could apply for home equity loan that is borrowed against the value of our house. Because the loan is based on collaterals, it is likely that we will have lower interest rates. This type of loan could offer us very attractive rates, although they can be variable depending on other factors. However, we should note that lenders simply transfer the risk to us and if we fail to make the payment, we could lose our house. Refinancing is another way to use the equity in our house to help us apply for consolidation loan. Refinancing can be implemented if we have paid off our mortgage and because we use our house as collaterals, we could also achieve lower interest rates. We could use the equity of our house to pay off high-interest credit cards and payday loans. We should be able to better manage our finances by lowering monthly payment. However, we should understand about the entire costs of refinancing that could counterbalance the lower interest rates.
Before we set up savings accounts, we should make sure that we have paid our bills. There could be expensive penalties that we need to pay if we are unable to make payments. In some cases, consolidation loan is not suitable for our condition if the interest rate is too high, due to some factors, such as the absence of collaterals. Luckily, we should be able to save money in the end if the interest rate and repayment periods are suitable. It also won’t hurt our credit rating if we agree to participate in the credit counselling program. We should be out of debt in less than four years if we always stick to the plan. However, we need to be careful with which professionals we are working with. Whatever we, do we are still the one who is most responsible with our situation.