Applying for a debt consolidation loan is not that easy. You have to do careful preparation for this to be a success. For you to get the loan that suits you the most, consider the following steps:
Evaluate your debt portfolio
List down all of your loans as well as credit card balance. Create a payment plan and budget based on this. Making a budget will help determine how much you can afford to pay monthly. If you have a monthly payment plan, you’ll have a reminder on the amount that you should set aside for your loan payment.
Determine the loan type that you need
Your lender or credit counselor will help you in identifying the loan type that you’d afford and qualify for. Once you’ve chosen the type of loan to apply for and proceed with the application, your next step is to determine if you’ll take a secured or unsecured loan. Note that your income, credit score, and debt-to-income ratio will be important factors to know which of these two you should apply for.
- Secured loan – This is the type of loan that uses assets like real estate properties and movable properties as collateral. Sometimes, personal savings are also accepted. Usually, this has a lower interest rate and is easier to get than unsecured loans. However, this is riskier, so ensure that you’d be able to consistently pay your monthly dues before applying for this loan. Otherwise, you could lose your asset.
- Unsecured loan – This is the type of loan that’s not backed by collateral. Some examples of this are credit card, personal loans, student loans, payday loans, and medical bills. The credit score is usually the basis of unsecured loan’s approval as well as its interest rate.
Look for the right lender
Before signing a contract with any lender, shop around first. This will allow you to compare their terms and rates. Research on what lenders are looking for when approving a loan. Remember, lenders have a business interest to protect for them to continue serving their customers. Generally, they require proof of income to confirm that the borrower can repay the loan, credit report to check the credit history, and adequate collateral for those who are applying for a larger loan.