How to Consolidate Your Loans

Plenty of Americans are saddled with high rate personal loans and credit cards, debt that can take many years to work off.

Time Bomb

Consolidating loans to one account is one way to diffuse the debt time bomb. Unfortunately, there are some people who claim that debt consolidation can be handled by everyone and provide satisfactory results. Worse, there are scammers who seem to be operating everywhere, people who will take advantage of your problems and exacerbate your misery.

Writing for Bankrate.com, Lucy Lazarony advises consumers to ask themselves and debt consolidators some questions before proceeding with a consolidation loan.[1] Two questions to ask are:

What company is offering the loan? The answer you get is extremely important because scammers are part of the mix. If the loan is from one of your credit card issuers or a recognized bank or credit union, then you’ll be fine. However, if it is from a company you don’t recognize, then you could be heading down a road of trouble.

What are the terms of the loan? Unlike credit card debt, your debt consolidation loan has a set beginning and ending date. It also includes an interest rate and monthly payment amount. Hidden fees are something you most be alert to says Liz Pulliam Weston.[2] The interest rate should be competitive with other offers and the monthly payment should be lower than the combined payments of your other loans. If it isn’t keep shopping or maintain the status quo.

Credit Scores

Oftentimes, when consumers need a debt consolidation loan they’re already in a heap of financial trouble. As you might guess, your loan rate is based largely on your credit history. If your credit has dropped to sub-prime levels then only sub-prime lenders will underwrite a loan. And, they’ll charge you a mint for that “privilege.”

What consumers can and should do before beginning the debt consolidation process is to pull copies of their three major credit reports. Those reports are available for free once annually and can be obtained at AnnualCreditReport.com. Consumers should examine these reports, notify the bureaus of mistakes or outdated information and pay the small fee to obtain at least one of the credit scores.

Credit Management

Experian, one of the three credit reporting bureaus — TransUnion and Equifax are the others — says most credit scores fall between 600 and 750 with a “score above 700 usually suggests good credit management.”