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Debt Consolidation Loan
What is Debt Consolidation?
Debt consolidation loans are generally from a bank or credit union, that you use to repay many other debts. For example, if you have five credit cards, you may be able to get a debt consolidation loan to pay off the credit cards.
What Are the Advantages of Debt Consolidation Loans?
The advantages of a debt consolidation loans are:
| 1. |
Budgeting is made easier with one monthly payment, replacing the numerous debt payments you have now. This should make it easier to budget your cash each month. Debt consolidation loans generally have lower interest rates than the rates you are paying on credit cards and other high interest rate debts. |
| 2.
| By lowering your interest rate, and perhaps by paying the loan over an extended time period, your total monthly payments should be reduced. |
| 3.
| Repaying all of your debts in full with a debt consolidation loan leaves you with, in most cases, a perfect credit report. |
Here’s an example. If you currently carry a $5,000 balance on three credit cards, with an interest rate of 18% per year, you are paying approximately $225 per month in interest on your $15,000 in debt. If the credit card requires you to pay, say, 3% of your balance off each month as well, your monthly payment next month will be approximately $675.
With a debt consolidation loan at a 7% interest rate, paid over five years, your monthly payment is less than $300 per month, for a very significant savings.
Do I Qualify for a Debt Consolidation Loan?
To qualify for a debt consolidation loan you must meet the following:
| 1. |
The bank will require a copy of your monthly budget to determine if you can meet your loan payments.
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| You must be working, or have a source of income to allow you to repay the loan. |
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| You may require a co-signor or collateral (such as a car or a house).
If you have poor credit, a co-signor will probably be required. Asking someone to co-sign for you is a difficult decision and should not be taken lightly, as any non-payment by you will directly impact on your co-signor’s credit score. |
What Is the Next Step in Obtaining a Debt Consolidation Loan?
To determine if you qualify for a debt consolidation loan, or for more information on debt consolidation loans, contact your banker or finance company.
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