William Potter/Shutterstock: Debt pile up every month
If you have multiple debts to pay off every month, consider taking up a debt consolidation loan. This loan combines multiple debts into a single, larger one with more favorable pay-offs. However, the chances are that if you have accumulated multiple dues, you currently do not have the best credit standing. This could make it hard to secure a loan.
Fortunately, there are lenders who specialize in working with those with poor credit scores. There are also some steps that can improve your standing beforeyou apply for these loans. These steps will only take a couple of months to finish.
Monitor Your Credit Score
RomanR/Shutterstock: Keeping the credit score in check
There is a simple incentive to getting a credit score—to lenders, it shows that you are more likely to successfully pay off the debts and so they will offer less interest. Most banks offer free online tools that help check the credit rating. After inputting some data such as your income and current debt status, the website will generate your score.
You can use this score to shortlist banks that will be willing to lend money. You can also track the score over time to see whether it has been improving.
Lending is a very saturated market, and it can get overwhelming perusing through multiple contracts. Take advantage of how many options are available. Local banks, national banks, and online lenders are just some sources you could borrow from, and the list is non-exhaustive.
Invest time in looking through what different lenders have to offer. Some may offer competitive rates, while others have more flexibility when it comes to your credit score requirements. Pay attention to the fine print – what are the contractual obligations the lender has, and are you able to meet them all?
Debt consolidation loans are typically unsecured ones. It means that you, as a borrower, offer up no collateral to secure the loan. This can result in requiring very high credit scores before you become eligible to take out the credit.
Instead, if you have a property or vehicle of value, consider using it to obtain a secured loan. While this is riskier in case of default payments, you are much more likely to find a loan with favorable rates.
Wait It Out
Artur Szczybylo/Shutterstock: Try improving credit score before taking a loan
If there is no rush to secure the loan, take some time to improve your credit score. Cut back on all non-essential spending and pay back the monthly debt bills in full and on time. If you can maintain this momentum for a couple of months, schedule a meeting with the organization from where you wish to secure a debt consolidation loan. Showing them your positive track record can incentivize them to consider you for the loan.
Armed with all these tips, one can easily secure a desirable debt consolidation loan. However, the efforts cannot end there. After receiving the money, immediately pay off the debts you have accumulated. Repurposing funds specifically meant to repay the debts puts you at risk of running up further loans. You must also work out an effective budget that allows you to pay back the consolidation loan every month.