Having a large amount of debt can leave you overwhelmed and stressed. Your financial outlooks can look very bleak when you are facing a mountain of debt.

How can you deal with the impending payments you know you’ll have to make at some point?

One way to improve your finances is to seek out a debt consolidation loan.

This can help you get back on track with your financial goals. Following this guide on how to get a debt consolidation loan can help you get started.

What is a Debt Consolidation Loan?

A debt consolidation loan is one strategy for managing your debts. It involves taking out one loan to cover the costs of all your other debts and loans.

For example, if you have 3 credit cards and 2 personal loans that equal $15,000. You could take out a debt consolidation loan to pay those debts. Now you only have one loan with one creditor.

You will only have to make one payment instead of making five payments. You are also only dealing with interest on one loan rather than five. 

It’s a great way to combine your debts into one lump payment. This can help you cut out extra costs like loan fees, interest, and penalties. It’s much easier to manage and will help you clear out your debts. Giving you some financial freedom to rebuild your credit. 

Types of Debt Consolidation Loans

There are several different types of debt consolidation loans. Choosing the right one for you is important. Each one has positives and negatives so research each kind and determine the best option. 

Home Equity Loan

A home equity loan is when you take out any equity in your home using it as collateral. For example, if your home is worth $200,000 but you only owe $40,000 you could take out a $20,000 loan to pay off your high interest debts and pay much less with your low rate mortgage over a much longer term usually 30 years and there could be tax advantages too.

You will have to use your home as collateral so make sure you can make your payments on time each month. 

Credit Card Balance Transfers

This type of loan is like a credit card consolidation.

If you have several credit cards with a balance you can combine them all onto one credit card. This way you only have one payment each month and one account you are paying interest on. 

Personal Loan

A personal loan comes from a lender. If you have decent credit and can secure a personal loan to cover your debts this might be a good option.

They are usually unsecured and have fixed payments which can be a benefit. 

Debt Consolidation Loan

A debt consolidation loan is for relieving debts only.

These organizations specialize in debt consolidation. They usually have services to help you secure debt and review your finances. They often offer counseling services along with loans. 

Tips on How to Get a Debt Consolidation Loan

There are several things you will need to do to get a debt consolidation loan.

It is important to do your research and find the right loan for your situation. You do not want to make your finances any worse than they already are.

Follow these tips to get a debt consolidation loan. 

Know What You Owe

The first step is getting a good idea of what your finances are. Sometimes it can be surprising to people who bad things are when it comes to finances. Get a free copy of your credit report, as there are several ways you can do that.

Review all your finances. Look for any wrong information, review all accounts, and write down a list of debts. Do some research on what loans you can combine on a loan.

Some loans like student loans might not be able to be consolidated. 

Make a Budget

Now that you know what your debts are you need to create a budget. What are your monthly bills and costs of living? To get a loan you will need to be able to prove that you can make the payments.

The last thing we want to do is to take out another debt that you cannot afford. You will need to create a successful budget that includes the new loan payment that you can stick to. Getting approved without a solid budget will be difficult.

Choosing a Loan

Once you have your debts figured out and have a budget that supports a loan you need to choose a loan.

There are a lot of companies out there that offer debt consolidation loans.

You will need to research each company and find a loan that is going to work best for you. There are different types of debt consolidation loans. Choosing the right kind of loan is important so you can be successful in eliminating your debts. 

Pay Your Debts

Once you receive a loan pay off your debts immediately. The money must be used to pay off your debts because that is what you borrowed it for. Pay them off soon so that you can avoid penalties or interest on your loans.

Every day they go unpaid can pile up fees. It is important you only use it for debts and the ones you outlined when you borrowed the money. 

Make Your Payments

The final step is to make your payments.

Make them on time and do not get behind in payments. Some loans have collateral so if you do not make your payments then you could lose the property you have put up.

Making your payments is important to restore your credit and finances. 

Is Debt Consolidation Right for You?

This can be a difficult decision to make, but it is important for your financial future to take the right steps.

If you have a lot of debts, then debt consolidation loans might be a good fit. Review your financial goals and options to see if it is right for you.

Review our guide on how to get a debt consolidation loan to see if it’s a fit. Afterward, give us a call to learn more about how we can help.