The key to saving money through debt consolidation is knowing how to compare your different options. Every lender that offers debt consolidation will have different deals and loan terms. If you don't know how to compare those loan terms, you may end up losing money. But don't sweat it. Once you know where to find debt consolidation loans and what to look for when comparing them, it will be easy.
Where to Find Debt Consolidation Loans Like most other loans, consolidation loans are given out by lending institutions, such as banks, credit unions and savings and loans associations. When looking for consolidation loans, you will want to find the lenders' consumer branches. The consumer branches will be the ones who handle debt consolidation applications and manage consolidation loans. The first step in finding a consolidation lender is shop around and compare offers. You should either search online, call or visit numerous lenders. That way you can compare the terms offered by each one. Although it may seem like a lot of work, just spending a handful of minutes for a few days could save you thousands of dollars. It is very important that you find the best deal. It will enable you to become debt free sooner and save you money.
How to Evaluate Lenders As you diligently search for the best lender, there are several things you will want to look for in particular. If you gather information about these topics from the lenders you evaluate, you'll have a much easier time deciding which deal is the best for you.
Interest Rate: Find the lowest interest rate possible. The lower your interest rate, the less it will cost you to pay back your debt. However, don't assume that you will get the advertised interest rate for your loan. Some loans that offer low introductory rates switch over to higher rates after the short introductory period (Downey). So you may actually end up with a high interest rate for the majority or your term.
Fees: Find the loan with fewest fees. Many lenders will charge an upfront fee, represented as a percentage of your loan or as points (Federal Trade Commission). If a lender claims to not have any fees, look to see if the interest rate is higher to compensate for the fees.
Term Length: The longer you have to pay back your loan, the more money it will cost you. So, if you can afford the higher monthly payments, choose a loan with a shorter term. Some lenders will push their low monthly payments, telling you how easy it is to pay back with such low monthly payments. What they may not tell you is that instead of being debt free in 10 years, it will take you 30 years to pay off. During those extra 20 years, you'll be paying a lot of extra interest. For example, imagine you took out a $10,000 debt consolidation loan that had an interest rate of 8.0%. If your term was 10 years, you would have to make 120 monthly payments of $121.32. By the time you paid off your debt in 10 years you will have paid $14,558.40 (LoanCalc). If you would have gotten that same loan, except with a 30 year term, your monthly payments would only have been $73.37 a month. However, you would have to make 360 payments, and would have paid $26,413.20 total (LoanCalc). Although switching from a 10-year term to a 30 year term reduces your monthly payments, you ultimately pay $11,854.80 more (LoanCalc).
Level of Service: When you get a loan from a lender, you are committing yourself to a relationship for the life of the loan. That means you will have to deal with your lender for the next 10 to 30 years. To make that time as pleasant as possible, make sure your debt consolidation lender has good service. You never know when you'll need to clarify a bill, make a correction or possibly alter your terms. A lender with a help line, friendly staff and prompt service can make a big difference. Don't overlook the little things when evaluating lenders. Those little things can make a big difference.
How to Apply for Debt Consolidation Loans After you have found the lender who offers you the best deal, the hard part is finished. Applying for the loan is relatively easy. All you have to do is either call to request an application or fill one out online (Weltman). Once your application is completed, just submit it to your lender. The application will be processed, and you will receive the specifics about your actual rates, fees and terms. Before you sign anything make sure you understand what you are agreeing to. If you have to use your house or any other asset as collateral, make sure you can make the monthly payments and that you stay out of debt in the future. If you fail to make your payments, your lender can take your home and other assets.
Debt consolidation may be able to help your financial situation, and with the right information you'll be able to ensure that you get a good deal. Just make sure you diligently search to find the best lender and that you completely understand what you are agreeing to.
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