It is not that you always need to be neck deep in loans to make you feel so much uncomfortable that you seek ways to get out from it. Even if the loan amount is not much of concern for you there is yet something very important that you want to protect. It is your credit rating that you can hardly allow to be dented. Modern lifestyle is highly dependent of debts for decent living. Debts have been wound around our lives and whether you like it or not, at some point in time you have to turn to it. Therefore, you know very well how good credit rating can make you a good candidate for getting loans. Hence, the need to protect it from getting tarnished, in case you happen to be defaulting with existing loans.
Issues with multiple creditors
Repaying capabilities are not always the reason why people fail to keep up with loan repayment schedules. Although it might be true for some people, most point to the troubles that they face in servicing several creditors. It is common nowadays that people use several credit cards and maintain several loan accounts concurrently. Each account has its own payment dates and consequently there could be several dates in a month when payments have to be made against the loans. This can become quite tasking for two reasons — firstly, remembering the dates is often difficult and secondly, keeping track of finances and allocating funds for timely payments needs close attention. Failed payments could directly affect credit scores that can further weaken the prospects of securing fresh loans.
Reasons for failure
On analyzing the situation that has been described above it will be easy to understand that the problem crops up from the number of creditors that have to be handled. Each credit account has to be monitored individually to ensure that billings are correct because there are instances when some errors can creep in and add to your woes. Going through many bills every month at different times and matching with various payment dates are no less challenging. Moreover, funds have to be allocated to the accounts at the right time to effect payments. Taking everything together, it is a cumbersome task that can be quite stressful and even difficult to manage that often might lead to missed payments.
Looking for remedy
Considering the realities on the ground, it has to be accepted that you have to find out ways of living more comfortably with credits and managing debts in a smarter way. Although it would be ideal to seek a debt free life but it could be really hard to make it happen. Rather, finding methods of coping with debts in a better way is a more practical way of tackling the problem. There are three financial options that you can try out to resolve the problems faced with multiple creditors. All these are aimed consolidation of loans – dealing with a single loan account that replaces many. Read on to know about your options of consolidation.
Take personal loan
Taking out a personal loan can be thought about but it is far from practicable to make it work. Personal loans entail much higher rate of interest that could leave you paying more than what you have to pay now. The terms of payment may not also be favorable. It can affect your affordability and defeat the purpose of consolidation of loan accounts. Moreover, personal loans are given for smaller amount and the sum that it fetches might not be enough to pay back all other loans.
Line of credit against home equity
If you own a house, you can think about converting its equity value into a line of credit for obtaining some money to pay back other loans. While getting the amount you need is not a problem, the interest is also lower and the terms are also extended, it needs careful consideration to decide using this facility. The loan that you get is only for a portion of the home equity with the major part remaining unutilized. Since your home has the potential of bailing you out from much bigger financial crisis, exercising the options for credit consolidation may not be a wise decision.
Get a fresh loan specifically for consolidating debt
Loans are available for various purposes and are named according to it. There are home loans for home making, vehicle loans for buying cars and there is even a special category of loan for debt management which is known as debt consolidation loan. This is perhaps the most used option because it comes with some benefits that are just suited for the exercise. Unlike personal loans, this does not have any limits attached to it and can cover any amount of outstanding loans. It offers lower interest rates and favorable terms can also be negotiated. With the right attitude of using this option correctly to wipe out other loans, it is the perfect solution for consolidation that you have been looking.
Getting the best loan
In order to get the best loan for consolidating debts, there are some methods to follow.
- Shop around – The money market is highly competitive and you should get a good bargain for the new loan that you will be taking. Do not be carried away by the face value of offers. Do a thorough analysis to understand what your benefits are and then shop around to get the best bargain.
- Unsecured loan – Look for loans that are unsecured – that is available without asking for any collateral security.
- Interest cost – While shopping around make sure that you get the lowest interest with favorable terms. This would help to save money through consolidation.
- Costs and fees – Know about the costs that are associated with the loan – like closing costs that some companies charge. Also know about the fees to be paid, if any.
Once you have identified the new lender, it is time to make use of the opportunity for not only consolidating the loans but using it to your advantage for recouping your finances.