What is Debt Consolidation?
Debt consolidation is where someone can combine more than one debt obligation into a new loan with terms that you agree upon like lower tenure, interest rate structure, and various other factors. Via the amount received from this new loan, you can pay back any debts, due bills or other small loan payments that are due. By paying off small loans and debts in one go you not only save finances and interest but also finance the cost of the smaller loans you need to pay off.
You need to have an understanding of all the money you need to pay back to people and the exact amount that is due, the obligations and criteria of your debt and finally the tenure and period of time. After you gather all of this information you simply need to reach out to a good debt consolidation company.
Choosing the right debt consolidation company to apply to for a loan can be a tricky process. What if they have an interest rate you can’t accommodate to? What if the monthly instalment required is way above your pay grade and will certainly do more damage than help you out? What if the terms and conditions for the loan are not what you expected them to be and thus can cause hassles and troubles?
So many ‘what ifs’ and dubious questions can lead to a borrower abandoning the idea of taking a debt consolidation loan in the first place.
What is a Personal loan?
When you apply for a personal loan, you ask to borrow a specific amount of money from a lending institution like a bank or credit union. While funds from a mortgage must be used to pay for a house and you’d get an auto loan to finance a car purchase, a personal loan can be used for a variety of purposes. You may seek a personal loan to help pay education or medical expenses, to purchase a major household item such as a new furnace or appliance, or to consolidate debt.
Repaying a personal loan is different from repaying credit card debt. With a personal loan, you pay fixed-amount installments over a set period of time until the debt is completely repaid.
Before you apply for a personal loan, you should know some common loan term called Principal. This is the amount you borrow. For example, if you apply for a personal loan of $10,000, that amount is the principal. When the lender calculates the interest they’ll charge you, they base their calculation on the principal you owe. As you continue to repay a personal loan, the principal amount decreases.
How to Apply for a Personal Loan
Whenever you ask a lender for any kind of credit, you’ll have to go through the application process. However, before you submit a personal loan application, it’s important to review your credit report and your credit score, so you’ll understand what lenders might see when they pull your credit report and scores. Remember, checking your own credit report never affects your credit scores, so you can check as often as you need.
Once you’ve reviewed your credit and taken any necessary steps based on what you see, you can apply for a personal loan through any financial institution such as a bank, credit union or online lender. Every lender you apply to will check your credit report and scores.
Lenders will usually consider your credit scores when reviewing your application, and a higher score generally qualifies you for better interest rates and loan terms on any loans you seek. The lender will also likely look at your debt-to-income ratio (DTI), a number that compares the total amount you owe every month with the total amount you earn. To find your DTI, tally up your recurring monthly debt (including credit cards, mortgage, auto loan, student loan, etc.), and divide by your total gross monthly income (what you earn before taxes, withholdings and expenses).
You’ll get a decimal result that you convert into a percentage to arrive at your DTI. Lenders like to see DTIs under 36%, but many may provide loans to borrowers with higher ratios.
Overall, you have nothing to worry about if you have a reliable lender on your side, which is why you should choose rightly.