Done right, it can help you get out of debt faster. Here’s what you can do to obtain a better loan with favorable terms.
1. Review your credit reports.
The three credit reporting bureaus are: Experian, Equifax and TransUnion. All three maintain personal information about you including your name, address, your loan history and current financial picture.
With so much information vested with these companies, some of that information may not be correct. Therefore, you need to obtain copies of your reports. You can do so for free by visiting AnnualCreditReport.com.
When you obtain your reports, verify that the information about you is correct. If not, contact the respective credit reporting company to have it corrected. These companies have 30 days to update your information if it isn’t challenged by a creditor.
2. Obtain your credit score.
Your credit reports are important and are what determine your credit score. Your credit score is a three-digit number that creditors use when considering your loan request. As you prepare for loan consolidation, you should know your credit score.
You can visit MyFico.com to obtain your score. It is based on five factors that provide an indicator of credit health. If your score comes in low, then problems in your credit report should reveal why. If there are errors in your credit report, then fix those before obtaining your credit score. Your score should accurately reflect your current credit standing.
3. Explore your debt options.
Loan consolidation can be great, but it isn’t without its challenges. First, you may not get approved for a loan. Second, debt consolidation may not take care of your financial problems.
You have options and these should be explored. First, contact your credit card company to ask for a lower interest rate. Second, consider refinancing your home to save money, funds that can be used to tackle your debt. Third, if you have a life insurance policy or retirement plan, borrowing money may help out. Fourth, consider what assets you own that can be sold. Only move forward with debt consolidation if all of your options have been exhausted.
4. Apply for a loan.
There are several places you can look for a loan. Your bank. A credit union. Through a credit card company.
Your banker may know you and you may have a good track record there. You can also talk to other banks as well as to credit unions. Rates and terms can vary considerably based on how much you want to consolidate and for how long.
Another option is to take transfer your balances to a zero percent interest rate credit card. That rate is for the short term, usually six to 18 months. When the rate period ends, your interest rate will likely soar. Still, it may be a good enough deal to allow you to buy some time.
5. Accept the offer.
You’ve applied for a loan or have received a credit card transfer offer. You have read the fine print and feel comfortable with the loan. At this point you can accept the loan offer.
The funds for the new loan may be used to pay off your debt or you may be issued a check to make payments yourself. As soon as you can, make your payment to complete the consolidation.
With a loan consolidation, your debt has not been canceled. It has merely been shifted to another creditor. That means you are still responsible for paying what you owe.
Make certain that you track your new debt and work at paying it down as soon as possible. You have been given a financial break, so use it wisely.
See Also — Debt Relief Guide