Make sure to go through every step if you want to get the best rates and avoid missing out on payments.
Debt can be stressful, especially when it’s spread across more than one account and you’re making multiple monthly payments. Debt consolidation loans can make your debts more manageable by combining all your balances into one personal loan with one monthly payment.
If you are considering getting a debt consolidation loan, this step-by-step guide will walk you through the process.
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1. Check your balance
You’ll want to know your credit score before diving into credit applications. This will help you learn about the types of debt consolidation loans that you qualify for.
There are plenty of ways to get your credit score for free. For example, your credit card may offer free credit points. And Experian offers a free basic membership that includes your credit score.
2. Withdraw your credit report
It’s wise to research credit report errors before applying for credit, too. Pulling your credit report is different from checking your credit score, so you will have to do this separately. You can get a free credit report from everyone Three major credit bureaus at AnnualCreditReport.com.
Comb all three to make sure everything on your credit history is accurate. If you find an error, go against it and make sure you remove it before applying for a debt consolidation loan. Removing negative marks from your inaccurate credit should boost your credit score well, which will help you qualify for the best personal loans.
3. Make a list of your monthly debts and payments
Next, you’ll need to go through all of your accounts and list the total balance, monthly payments, and interest rate for each account. This should include all of the following:
You’ll want to have this information for the next step, which will help you figure out whether or not a debt consolidation loan will be financially beneficial for your situation.
4. Consider your loan options
Once you know your credit score, you should have an idea of which debt consolidation loans you can qualify for. Just be sure to consider all of your options, such as:
In particular, pay attention to the following features:
You’ll want the lowest annual interest rate possible to keep the loan affordable, but you’ll also want a loan large enough to pay off all of your debts.
You’ll need a loan term long enough to make your monthly payments manageable but not so long that you end up spending more on interest than you need to.
Finally, be sure to pay attention to any other fees associated with the loan, such as set-up fees or prepayment fees. Look for loans with low or no fees.
5. Use the debt consolidation calculator
With all of your account information and an idea of your loan options listed, you can use a debt consolidation calculator to estimate your monthly payments and debt repayment schedule. Look at how long it will take you to pay off your debt consolidation loan, what your monthly payments will be, and how much you will end up spending on interest.
From there, you can decide if a debt consolidation loan is really right for you. Ideally, you want a loan that allows you to pay less interest than you are currently paying. However, if you need to lower your monthly payment, that may not be possible. Making sure you can afford your monthly payments and that you won’t be left behind should be your number one priority – next, look to reduce any fees you pay.
6. Apply for debt consolidation loans
Once you have narrowed down your options to the list of lenders that offer what you need in a debt consolidation loan, start applying. You can apply with multiple lenders to compare the best rates, but you’ll want to do so in a short time frame.
Multiple loan inquiries are usually grouped in a short period of time together as a single query about your credit report, minimizing the potential negative impact on your credit.
If you do not qualify for any debt consolidation loans, you can also consider getting a personal loan from a cosigner. This can help you qualify if your cosigner has good credit, but it will also be in trouble if you don’t pay off your loan.
7. Close the loan and set up automatic monthly payments
When your debt consolidation loan is approved, you will close the loan. The lender may pay off all of your debts directly, or they may deposit the loan amount into your account, at which point you’ll want to pay off all your balances immediately. Check back later to make sure all of your account balances are zero.
Setting up automatic monthly payments with your new loan is a great way to make sure you don’t miss any payments. Some lenders even offer discounts for setting up an automatic payment.
Now that you understand the process, you can start finding the right debt consolidation loan for your needs.