Step-by-step guide to getting a debt consolidation loan
Be sure to follow all the steps if you want to get the best rates and avoid missing payments.
Debt can be overwhelming, especially when it’s spread over more than one account and you’re juggling multiple monthly payments. Debt consolidation loans can make your debt more manageable by combining all of your balances into one personal loan with one monthly payment.
If you’re considering getting a debt consolidation loan, this step-by-step guide will walk you through the process.
1. Check your credit
You’ll want to know your credit score before you dive into credit applications. This will help you get an idea of the types of debt consolidation loans you qualify for.
There are many ways to get your credit score for free. For example, your credit card may offer free credit scores. And Experian offers a free basic subscription that includes your credit score.
2. Pull out your credit report
It is also wise to research credit report errors before applying for credit. Pulling your credit report is different from checking your credit score, so you’ll need to do that separately. You can get a free credit report from all three major credit bureaus on AnnualCreditReport.com.
Comb through all three to make sure everything in your credit history is accurate. If you find an error, dispute it and make sure it is removed before applying for a debt consolidation loan. Removing negative scores from your credit that aren’t accurate should give your credit score a nice boost, helping you qualify for the best personal loans.
3. Make a list of your debts and monthly payments
Next, you’ll want to go through all of your accounts and list the total balance, monthly payments, and interest rate for each one. This should include all of your:
You will need this information for the next step, which will help you determine whether or not a debt consolidation loan will actually be financially beneficial for your situation.
4. Consider your loan options
Once you know your credit score, you should have an idea of what debt consolidation loans you can qualify for. Just be sure to consider all of your options, such as:
And in particular, pay attention to the following features:
You’ll want to get the lowest APR possible to keep the loan affordable, but you also want to get a loan large enough to pay off all 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 interest than necessary.
Finally, be sure to pay attention to any other fees associated with the loan, such as origination fees or prepayment fees. Look for loans with little or no fees.
5. Use a debt consolidation calculator
With all of your account information listed and an idea of your loan options, you can use a debt consolidation calculator to estimate your monthly payments and debt repayment schedule. See how long it will take you to pay off a debt consolidation loan, what your monthly payments will be, and how much you’ll 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 what you are currently paying. However, if you need to lower your monthly payment, this might not be possible. Making sure you can afford your monthly payments and that you won’t be late should be your first priority – after that, look to minimize the fees you pay.
6. Apply for debt consolidation loans
Once you’ve narrowed down your options to a list of lenders that offer what you need in a debt consolidation loan, start applying. You can apply to multiple lenders to compare the best rates, but you’ll want to do it in a short amount of time.
Multiple loan applications over a short period of time are usually consolidated into one application on your credit file, which will minimize the potentially negative impact on your credit.
If you are unable to qualify for a debt consolidation loan, you can also consider getting a personal loan with a co-signer. This can help you qualify if your cosigner has good credit, but they’ll also be liable if you don’t repay your loan.
7. Close the loan and set up automatic monthly payments
When you are approved for a debt consolidation loan, you close the loan. The lender can pay off all your debts directly or deposit the loan amount into your account, in which case you will want to pay off all your balances immediately. Check back later to make sure all 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 autopay.
Now that you understand the process, you can start finding the right debt consolidation loan for your needs.
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