What to consider before applying for a debt consolidation loan

When you have many bills with high interest rates, you may look toward a debt consolidation loan as a way to consolidate those bills. Before you do that you want to weigh your options and decide whether that is the best course of action in your case. Sometimes what seems like a good idea is not always the best plan.

Look at the balances on your bills

Before you look toward a debt consolidation loan as a way to lower the payments on some high interest loans and credit cards, look at how much you how on each account individually. You want to do that in order to determine if any of the bills are close enough to being paid in full to make it unadvisable to put those balances into a debt consolidation loan. If you have a loan that will paid off in less than a year, you don’t want to include that in a loan that will extend that balance another four or five years.

Review the individual monthly payments

Another thing you want to review is the monthly payments on your loans and credit cards. Even though the interest may be high if the payments are low it may not solve your problem by consolidating especially if you don’t have the collateral to secure a long-term debt consolidation loan. If you are limited on resources for a long-term loan or do not qualify for a loan high enough to pay off all your loans, you want to look at those with the highest monthly payments. Of course, as already stated, if those with high monthly payments will be paid in less than a year, you want to look toward those with higher balances as well as higher payments.

Evaluate your financial situation

Before you make any decision about a debt consolidation loan, you need to look at your financial situation in order to determine whether that is in your best interest. This is especially true if you plan to use the equity in your home as collateral for the loan. Keep in mind that if you use your home’s equity and you miss payments, you can lose your home even if you pay your first mortgage on time every month. If the lender is asking for collateral to secure the loan, evaluate your debt load seriously before you place your home on the chopping block. Only use your home’s equity if it will provide the cushion you need to be able to pay all of your bills on time.

Choose the offer that is best for you

Before you enter into an agreement for a debt consolidation loan, do some research and obtain some quotes from various lenders. Before you make a final decision, be sure you have enough information to make an informed decision about each lender and choose the one that provides the best offer to suit your situation.

You want the loan to benefit you both in interest and the repayment term. Be open to negotiate with the lender if necessary and don’t accept the first approval you receive. Always remember there may be a better offer waiting, and if you conduct enough research, you will know exactly where to end your negotiations.