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5 Things You Need to Know about Loan Consolidation
People who feel “locked in” with high-interest debt may want to consider loan consolidation as a way to save money. Loan consolidation is not a perfect solution for everyone, but it can be extremely helpful to those who qualify. Before you apply for a loan, there are some important things to consider.
Interest Rate
The goal of loan consolidation is to eliminate high-interest debts, like credits card, by paying them off with a lower interest rate loan. If you have a 19% interest rate on three credit cards and you pay them all off with a loan that has a 10% interest rate you will save a substantial amount of money. The goal of loan consolidation is to eliminate high interest debts by combining them in one low interest rate loan.
Don’t Over Borrow
Many people are tempted to borrow just a “little extra” to buy something they want. Borrow as much as you need to pay off you debts, but no more, otherwise the extra interest you will pay practically eliminates the point of paying off your other debts.
Getting A Loan
If you have questionable credit, or a lot of credit cards with high balances, you might find that getting a consolidation loan is difficult. Some financial institutions will make exceptions if you agree to pay off the other debts with your new loan. Speak to a loan specialist to find out what your options are.
Home Equity Loans & Refinancing
Mortgage interest rates are typically lower than personal loans so many people choose to consolidate their debts with a home equity loan or by refinancing. Lenders tend to look at home equity and/or refinance loans favorably because they’re secured. However, be aware that you are sacrificing equity and putting your home at risk if you fall behind making payments.
Maintain Good Credit
It is important that you pay your loan on time and don’t incur unnecessary debt. A consistent payment history will increase your credit score and may help you qualify for an even better loan in the future. Most people only get a limited number of chances to consolidate their loans, so if you incur more high-interest debt after your loan consolidation, you may not qualify for a second chance to consolidate it. Interest rates and credit scores change over time. Sometimes people accept high-interest loans or credit card rates because its’ the best they can get at the time. If you’ve gotten locked into high-interest debt and your credit is in better shape now, loan consolidation will make paying off those debts much easier.
Visit CreditLoan.com for more information on loan consolidation, bad credit loans, and more.
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