What Are the Steps to Consolidate Your Loan?
If you have multiple debts and are struggling to make ends meet, it can seem impossible to make headway with your finances, especially if the debt dragging you down isn’t even yours! If you can consolidate your loan, though, you might be able to reduce your monthly payments and pay off your debts more quickly. This guide will give you the steps to consolidate your loan to get back on track with your finances sooner than later.
Step 1: Contact Your Lender(s)
If you have multiple loans with different lenders, you’ll need to contact each lender and ask about their debt consolidation programs.
Step 2: Calculate Your Debt-to-Income Ratio
Lenders will want to see that you have a reasonable debt-to-income ratio before approving you for a consolidation loan.
Step 3: Apply for a Consolidation Loan
Once you’ve calculated your debt-to-income ratio, you can apply for a consolidation loan.
Step 4: Find a Debt Consolidation Company
If you can’t find a lender that offers consolidation loans, you may consider finding a debt consolidation company.
Step 5: Evaluate Your Debt Consolidation Company
Once you’ve found a debt consolidation company, you’ll want to evaluate it.
Step 6: Negotiate With Your Creditors
Once you’ve found a debt consolidation company and evaluated it, you can begin negotiating with your creditors.
Step 7: Work With Your Debt Consolidation Company
Now that you’ve negotiated with your creditors, you can work with your debt consolidation company.
You can find many debt consolidation companies online. However, it’s best to do extensive research on each company and shop for quotes. This will ensure you get a good deal.
Types of Debt Consolidation Loans
- Fixed-Rate Consolidation Loan: A fixed-rate consolidation loan will typically have a lower interest rate than other loans. The interest rate will be fixed for a set period, typically between five and ten years.
- Variable-Rate Consolidation Loan: A variable-rate consolidation loan has an interest rate tied to a financial index, such as a prime rate or LIBOR.
- Graduated-Payment Consolidation Loan: A graduated-payment consolidation loan is a fixed-rate loan; however, payments start low and increase over time.
- Interest-Only Consolidation Loan: An interest-only consolidation loan allows you to pay only interest for a set time, typically three or five years.
When consolidating credit card debt, understand that different companies charge different interest rates for their consolidation loans. Some offer fixed-rate loans, and others offer variable-rate loans, which can make a big difference in how much money you pay over time.
According to Lantern by SoFi Invest, “Fixed personal loan rates range from 5.74% APR to 21.78% APR (with all discounts)57.” Most companies will negotiate along these lines, but some credit card consolidation loan companies will try to rip you off. Just be sure to compare several lenders before deciding on one.
How Much Can I Borrow With Debt Consolidation Loans?
Debt consolidation loans aren’t just one size fits all. Several factors determine how much you can borrow with debt consolidation loans, including your income, credit score, and what you owe.
If you can’t see yourself repaying your debt within a set time, consider consolidation. In some cases, getting a consolidation loan will lower monthly payments or allow you to pay off multiple loans.