While you have lots of responsibilities to fulfil, keeping tabs on multiple debts becomes extremely challenging. Much as you try all the harder to pay all your debts on time, you fail to maintain your credit worthiness.
Outstanding balances invite penalty fees and interest, which cause additional strain on your finances. You may fail to fulfil your obligation even if you take a rollover loan. The burden of debt is so threatening that you give up your hope to get out of debt. Well, do away with your worries as debt consolidation loans can ease the pressure.
Debt consolidation plan merges all of your existing debts into a new mortgage extended over a period of time. You pay equal installments at a lower interest rate than your small size loans.Consolidation is the best approach when you are not able to manage several debts together.
Keep following points in mind while looking forward to debt consolidation offers
- Contact multiple lenders
Each lender follows different policies, so make sure that you have researched well before jumping to the deal. Finalize the deal with the lender offering the most competitive interest rates. You can apply for these offers even if you have a bad credit history. However, bad credit no guarantor loans charge a bit high rate of interest.
- Do not ignore APR
You must ask for annual percentage rate before you sign any deal. Compare the total amount of interest you will pay over your instalments with other lenders. The most favourable deal is one that costs you lower APR. If you have a good credit history, you can negotiate for the interest rate.
- Check if there are any prepayment penalties
Some direct lenders do not maintain the clause of prepayment. In that case, no fine is charged if you pay earlier than scheduled dates. However, A few direct lenders impose fine if you make prepayments. So do not forget to ask about prepayment deals. You should choose the lender who allows you to pay even earlier than scheduled date. This will help you get rid of debt quickly.
What if your lender turns down the application?
Even though debt consolidation programmes accept a large number of borrowers, chances are your application is rebuffed due to one or another reason. The most common reasons for rejection are low income and very poor credit score. However, your request can be approved if you follow these guidelines.
- Reduce the amount of your debt
In addition to the income statement, a lender also looks over your existing debts. With too many debts, a lender doubts that you rely only on borrowings and that is why you are enrolling in a consolidation programme.
- Find a guarantor
If your application is cast aside because of your poor credit score, you should ask someone to be a guarantor. Make sure that the guarantor has a good credit history. Your lender will approve the loan on the basis of your guarantor’s financial condition.
- Whittle down your expenses and improve your credit score
If no one gets ready to be your guarantor, you will have only one way – to apply for the consolidation loan next time and in the mean time – to improve your credit score. You should make a budget to tap into your finances. With the help of budget, you will be able to know where your money is going and cut down on your unnecessary items.
- Talk to your lender
Talk to your lender when your application has been rejected and you have considered other options but you are not certain about any one of them. Your lender will provide you with other better options such as a debt management plan. With proper guidance and counselling, you will be able to pay back whole of your debt.
The bottom line
Debt consolidation loans may help you reduce your monthly payments as you have to pay lower interest. However, your lender will consider your income before approving your application. If your income does not seem to be enough to pay back your consolidated debt, lender may deny processing your request.