If you’re falling under the burden of your unsecured debt, you are not alone. You’re among thousands who are grappling with spiraling debt, but there is help for you. Consolidating your debt is one of the best ways to deal with spiraling debt and allow you to eventually dig yourself out of that mountain of debt. You will only have a single payment to keep up with every month, and you can even end up paying less than the total you were paying on all your loans before consolidation.
This article gives important information you must know before going for debt consolidation to ensure that you make the best of your choice.
1. Get your credit report
The most important thing to do is to get a current copy of your credit report and ensure that all the entries reflect the current state of accounts. Your credit report plays a part in the kind of debt consolidation loan you can get, so be sure that it’s accurate. In addition, you credit report will inform you about the best way to go about consolidating your debt.
If there’s an erroneous entry, dispute it by using the form on the credit reporting website. You should back this with a written mail outlining your contention as well as the relevant documents to support your claim. Once you have your credit report, you can negotiate with lenders to withdraw bad reports in return for your paying off all their money so that you win on both fronts.
2. Know all your options
As stated, your credit report could limit the options you have for debt consolidation. Below are the most common methods used:
• Consolidation credit cards – These are used to consolidate high-interest credit cards (above 17 percent). Your credit balances are transferred to a lower-interest card which means you’ll end up with lower monthly payments and also save on the financing cost. With a good credit score, you may even qualify for a zero-interest credit card which allows you up to 18 months to pay off the amount
• Consolidation loans – Personal debt consolidation loans charge simple interest and allow you to repay for three to five years. They are available with credit unions and banks, but you need to study the lender’s requirements as well as investigate their debt consolidation reviews so that you get the best loan available for you. Online lenders (provided they are reputable) often have even lower interest rates and more flexible terms than conventional lenders.
• Debt management plans – These are for people with serious debt problems such as huge debt with bad credit scores. You should consider turning to nonprofit credit counseling agencies that will help you to work on a debt management plan. The agency will pay your lenders directly after negotiating with them, and so you’ll make a single payment to the agency each month until you’re debt-free.
Choose the option that gives you the most savings depending on your situation. You can also approach a financial advisor if you’re not sure about which option to take.