Simple facts about debt consolidation

If car loans and credit card payments are weighing you down, think about debt consolidation. All that heavy debt can be amalgamated into one, single monthly payment. One payment, which will lower your total interest paid out over the duration of the loan, may be a way of lightening the load.

You can apply for a debt consolidation loan at your bank or finance company. They'll put all that debt together into one lump sum, at an interest rate that promises to be much more attractive than the ones you're forced to pay now. Some cards charge over 30% interest, whereas a bank can charge at least ten points less if not more. In most cases, a consolidation loan will cover all of your outstanding debt.

Interest rates may vary from bank to bank, finance company to finance company. Don't be afraid to shop around. You may feel sheepish about your situation, but you are still a customer bringing them business. Inquire about whether all of your debit is eligible for consolidation. Don't ask about your mortgage payment, however. It can not be included.

Who can qualify?

As with any type of loan, your credit rating should be acceptable. This is difficult when you've been juggling multiple monthly payments - some of them probably have been made late. What your loan officer will want to know is whether you can pay your other bills and have enough to live on, plus make the new loan payment. If your credit isn't great, it's not too late to consult a credit repair specialist in advance of your loan application.

Other things to know

Keep a list of current debts: A loan officer will ask for an honest list of all outstanding debts, even those that may not qualify for consolidation. They can double check your credit file anyway, so be sure to be completely open and above board.

Banks have lower interest rates: It is harder to get approved by a bank, but they will offer you lower interest rates than a finance company. On the other hand, a finance company has a higher acceptance rate along with their higher interest rates. You can still negotiate a good interest rate by visiting several companies. But, experts suggest talking to no more than three companies as your inquiries may will be noted and observed, perhaps suspiciously, by your local credit bureau.

Paying all your creditors: Now that the bank has approved your loan, it's time to pay all your debts. Generally, the loan officer will pay everything for you and close your accounts. If you've proven to be a good risk and have not ruined your credit, you may be able to take a lump sum and pay all creditors yourself.

The consolidation disadvantage

You're relieved that you've got a handle on your money. Now that one dilema is solved, don't create another by continuing to use your credit cards or retails store cards. Close your accounts, cut up every card save one (for emergencies). You still owe all that money - the figure hasn't changed, only the monthly payment has. Don't burden yourself with more debt.

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