A multitude of high-interest debt is causing you misery. You’ve decided that a financial strategy called debt consolidation is your ticket out. After all, the process can streamline multiple obligations into one payment and help you pay off debt quicker. Here’s how to apply for a debt consolidation loan.
Check Your Credit Score
Start the process by checking your credit score. While you may not be disqualified with a bad credit score – 300 to 629 FICO – individuals with scores of between 690 to 850 have a better shot at being approved and getting a low interest rate. Optimally, the interest rate on your loan will be lower than the combined rate on your existing debts. This lowers the overall debt cost and helps you pay off your debt faster.
If you don’t have to get a consolidation loan immediately, take steps to improve your credit. Even a small bump up can help.
Get your late payments in. If you’re less than 30 days late, submit your credit card payment. You want to get the payment in within the 30-day window. After that is when payments are reported as past due, which can lower your credit score by 100 points or more.
Look for errors. Say an account was incorrectly cited as being closed, or a payment went toward the wrong debt. Such inaccuracies could be weighing down your score. You can check your credit report and dispute any errors.
Satisfy small debts. Because debts owed make up 30 percent of your credit score, pay down any high-interest cards before you take out a consolidation loan. Doing so will help your debt-to-income ratio, which can garner a lower loan rate.
Write Down Your Debts And Payments
Put a list together of all the debts you wish to consolidate and add up the amount due. This is the total that you want your loan to cover. Next, compile a list of your monthly debt outlay, and check your budget for spending modifications necessary for continued debt repayment. Your consolidation loan should have a rate and monthly payment that works within your budget.
Consolidation loans – which are personal loans – are offered by banks, credit unions, and online lenders. Pursue the source that’s right for you. Bank loans. Such loans require good credit, although if you have a good relationship with a bank you might be eligible for a rate discount. Credit unions. While you must first become a member to apply for a loan, credit unions may offer lower rates to those with lesser credit.
Online lenders. These lenders offer loans to those with a range of credit scores, although if you do have bad credit, you’ll pay for it in interest. You can go to lenders’ websites and pre-qualify with no damage to your credit score. This way you can compare personalized rates and terms. It’s best to have lenders that will pay your creditors directly, which makes everything simpler. Some lenders also offer to have payments reported to the three credit bureaus; others provide financial education and flexible payment options.
Go On And Apply
When you’re set to apply for debt consolidation loans, pull together information including identification, income verification, and proof of address. Make sure you pay attention to the loan document’s fine print for any extra fees or early payment penalties. If you’re turned down for the loan, consider adding a co-signer who can help you qualify.
Now Make Payments
You’ve been approved for the loan you want! Next, if your lender offers direct payment, check your credit accounts for zero balances, or contact each creditor to be certain the accounts are paid.
If you must pay creditors yourself, do it as soon as possible to avoid incurring more interest on your old debts.
Then, about a month after getting the consolidation loan, start repaying it.
Now that you know how to apply for a debt consolidation loan, you can do so with confidence, knowing that you’ve taken all the necessary steps to obtain a loan and to return to financial health.