How To Get a Debt Consolidation Loan

The decision to consolidate your bills into one payment can be a very wise decision if you have numerous open accounts. Many people choose to consolidate because of the simplicity involved in only having the one bill.  Others like the fact that they do not have to pay various interest rates to numerous sources. In short, having the one bill makes things simpler. It also saves plenty of money in the long run, as it will be easier for a person to pay down one bill as opposed to many.

The number one way to get a debt consolidation loan is by using collateral, such as your home. Incidentally, consolidation loans are also sometimes known as Home Equity loans, because you are borrowing money off of the equity that you have earned in your home. Generally, the longer you've owned your home and the more money you've paid on it, the more you will be able to attain.

There are some catches to debt consolidation loans though. Due to the fact that your main reason for receiving this loan is to pay off your debts, many companies will place the money in escrow that will be paid out to the appropriate credit card and debt companies. This ensures that you handle all the bills that need handled and end up only having the one debt, which is your consolidation loan.

The following steps will be necessary in order to attain a debt consolidation loan through whichever lender you choose.

  1. Count everything up - If you want to get a debt consolidation loan, the first step is going to be finding out exactly how much you owe. You can do this by gathering all of your recurring bills (credit cards and loans) and adding up the totals. You will want to secure a loan for this amount or as close to it as you can. If you are not able to secure a loan for the amount of your debt, there is really no point in getting this loan to transfer part of your debt unless you will be receiving significantly lower interest than your current rates.
  2. Look for a lender - Thanks to the Internet, looking for a lender should be one of the easiest steps you will encounter in this process. Make sure that you look at many offers and companies before you decide to settle with one company. Remember that your first offer is usually not the best offer. Shopping around will ensure that you receive the best interest rates and terms possible.
  3. A good idea is to create a document with the names of companies, their offers and their rates. This will allow you to see a side by side comparison and make the decision of who to contact much easier. Another good idea is to ask people you know, such as family and friends, about the lenders they have used in the past. This will give you a few good options and some names and companies you might want to avoid.

  4. Choose the lender for you - In step two, you narrowed down the lenders that might work for you. Now it's time to pick one of the lenders and apply for a loan. If you are having a hard time picking one lender, you could always schedule an appointment to speak to one of the loan representatives in the companies that you like. Usually being able to speak to someone will give you an idea whether you are comfortable working with the company or not.
  5. Submit an application and all required information - Once you have made the choice, it's time to submit your application. Depending on the lender, you will have to fill out an application and turn in any number of items ranging from references to income tax forms. Commonly you will be asked for your identification card, social security number, job information and possibly check stubs, and other sources of income.
  6. Of course, the required information depends on the lender. Your best bet is to ask the lender what is necessary during the application process so you can gather the items and submit them with your application to speed up the process.

  7. Submit your debt records - When you attain a debt consolidation loan, the lender commonly has you submit your credit card information so that they are aware of all the bills you will be paying off. Commonly when your loan goes through, the money will be placed in escrow and from there, the bills will be paid off. Once your application is approved, you need to have your debt records on file with the lender in order to continue.
  8. Close the loan - Once you have submitted all the paperwork and debt information and your loan has been approved, all you need to do is wait for the loan to close. Generally, loan closing will take anywhere from three to four weeks. At the closing, you will sign the final loan agreement and the money will be placed in escrow so you can pay off all your debt in favor of having one payment rather than many.

It is important to remember that you are not really losing debt when you choose a debt consolidation loan. You are, however, redistributing the debt to make it easier for you to pay off your debt completely.

If you do not own a home, you are going to find that it is hard to get a debt consolidation loan. In most cases, you will want to try debt management instead. This is because your home is, more often than not, used as collateral for your debt consolidation loan. A lender is not going to want to give you $10,000-$30,000+ if you do not have any type of collateral, which can be used to encourage you to pay the loan back.

If you choose a debt consolidation loan, it is imperative that you pay the loan exactly as you agreed because your home is the collateral and should you default on the loan (cease to make payments), there is a good chance you could lose your home in foreclosure. However, if you are able to make the payments without a problem, a debt consolidation loan can be incredibly beneficial to someone that is knee deep in debt.


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