How To Choose A Debt Consolidation Loan Lender

Debt consolidation is a financial strategy consumers use to tackle payday debts, credit card debts, and other debts. It works by merging multiple debts or repayments into a single debt that borrowers can pay off through a debt management plan or a personal consolidation loan.

The most popular debt that people often consolidate is credit card debt, usually because it has very high-interest rates. However, people can also consolidate other types of debts, such as payday loans, personal loans, and medical bills, so how do you settle on a debt consolidation loan lender?

Is It A Good Idea To Consolidate Your Debts?

A debt consolidation loan is a personal loan, in most cases, not everyone has the creditworthiness to qualify for such a loan. First, you’d need to check if you’re eligible for an affordable personal loan. Second, depending on the amount of debt loan and company (lender), a debt consolidation loan might be expensive in the long run. For instance, taking a debt consolidation loan allows you to pay it back to only one lender. You might be making large payments over a long period, which may result in you paying in the long term.

Lastly, if you’re finding a challenge in paying back your current debts, will you be able to afford to pay the debt consolidation loan? You need to scrutinise your income and see the money you have and whether you’ll comfortably afford the debt consolidation loan repayments. 

When Is A Debt Consolidation Loan A Good Idea?

A debt consolidation loan is a good idea if:

  • You have a good cash flow that can pay monthly debt instalments 
  • Your instalments for debt payments per month (including mortgage or rent) don’t exceed 50% of your monthly gross income
  • You have good enough credit to enable you to qualify for a low-interest debt consolidation loan or 0% credit card
  • You can pay off your debt consolidation loan within five years or less

If you feel that the debt might be another challenge, the best thing to do is talk to a financial advisor before you make any move.

How Do I Choose A Debt Consolidation Loan Lender?

Since debt consolidation does not come for free, you need a debt consolidation loan that fits within your budget and helps you meet your financial goal of eliminating debt. Before giving you a loan, many lenders often pre-qualify you without inquiring into your credit. Information from pre-qualifications can give you an idea of the loan amount, rate, and term you could qualify for should your application be approved. 

To choose a loan consolidation lender, you can use the pre-qualification information to compare your options and decide on the lender that’s best for you based on different factors such as:

  • Loan cost: The loan cost, including the organisation’s fees and other charges, is a great determinant of your loan qualification. A large fee may outweigh the benefits of getting a consolidation loan.
  • Annual percentage rates (APR): Lenders use your credit score and other financial factors to determine your APR or the interest you pay per month.
  • Lender features: Research the lender and find out their reviews, credit monitoring, hardship programmes, and customer support. Find out if you can trust them and whether or not you will be comfortable doing business with them.

Endnote

If you decide to consolidate your debts through a debt consolidation loan, it’s important to take your time to research your options. Make sure the loan will fit your budget demands and help you eliminate debt. Don’t settle for a high APR that might affect your overall financial goals.

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