The debt consolidation loan process is quite similar with any other loan application that you will have to go through. But unlike the rest of them, this is more specific to getting debt relief.
When a person is in debt, their very thoughts are filled with the longing for a debt free life. If it has come to a point wherein they could no longer afford to pay the minimum requirement, they need to start making serious action about their credit obligations. In the event that their income is barely supporting their expenses and debt payments, then debt consolidation could become a viable option for debt relief.
The thing that makes this method attractive is the fact that it allows the debtor to have one manageable debt. Having a big debt is usually less stressful compared to three or more smaller ones. Not only that, if your debts are usually on credit cards, you can get a low interest loan to effectively lower your monthly payment dues and in the long run, save more on interest.
The application of this debt solution is more tricky because you are on your own in this. There is no professional required so you need to know the whole process to make sure that you will go about it the right way.
Your first step will be to find out how much you really owe. At least, get the amount that you can pay off in full without necessarily getting penalized for it. If there is a penalty, find out how much it will be. Define all your debts and see which ones will charge you with prepayment penalties. The whole idea is to know how much you should borrow.
The next step is to find out how much you are qualified to borrow. This can be done by creating a budget that will help you see how much you really get every month and where it currently goes to. Remove the debts that you want to pay off with the loan that you intend to make. Compute for your disposable income to see if it is the ideal amount that will prompt any lender to approve your loan.
If it is, then the next phase will be preparing the documents and signing the forms that you need to submit to the lender. In most cases, lenders will ask the same thing from you. The requirements usually include a proof of income and other documents that will assure them that you can pay off what you want to borrow.
Searching for a lender is your next move. Make sure you do choose only a handful of lenders because having a lot of applications at one time will lower your credit score. Select the one that has the best deal in terms of interest rate and payment options.
If your application is approved, pay off your other debts and if possible, close off your credit card accounts (save for one). You want to remove the temptation to use them again and in effect, accumulate more debt.
The whole premise of using a loan to pay off a set of smaller debts makes this type of debt solution quite controversial. While a lot of financial experts frown upon this method, it will always remain to be a legitimate way to solve your credit problems. However, you may find that a lot of people do not succeed in it – but that is not because it is flawed. It is more because of their attitude towards the whole process that gets them to fail.
As you begin making that single payment, you need to practice proper financial management skills. That includes living within your means, making smarter spending choices, sticking to a budget plan and growing your reserve fund.