If you’re interested in purchasing a new home but are struggling with a significant amount of debt, then you’ve probably considered consolidating your loans. This is the process of combining several loans into one so that the debt is more manageable. However, before you consolidate, there are a few things that you should keep in mind.
1. Consolidation Doesn’t Equal Reduced Debt
Debt consolidation can be a huge weight off of your shoulders. Instead of having to pay several companies, you only have to focus on paying one. However, there’s a common misconception that consolidation means less debt. This is a myth. When you consolidate your loan, the debt remains the same. In fact, if you negotiate a longer payment period, it can actually lead to your paying more in interest. In most cases, consolidation is only beneficial if you’re able to negotiate a better interest rate or lower monthly payment.
2. A Consolidation Loan is Not the Same as a Consolidation Program
There are several ways that you can consolidate your debt. Consolidation loans involve taking out a new loan in order to pay off several debts. And this inevitably results in one monthly payment. Consolidation programs, however, involve your getting assistance from a credit counselor who takes care of the consolidation process for you. They negotiate the terms of your debt with the lenders and creditors so that you secure lower interest rates and payments.
3. Consolidation Builds Your Credit
Not only does loan consolidation make your debt more manageable, but it can also help you to build your credit. You see, loan consolidation requires that you take out a new loan. When you pay this loan off regularly, it reflects positively on your report. So effectively, you’re paying off your debt and improving your credit score all at once.
4. It’s Best to Improve Your Credit Before Getting a Consolidation Loan
Sure, loan consolidation can improve your credit score. However, you can use your credit score to assist with the loan consolidation process. You see, the better your credit, the low the interest rate on your new loan. So before applying for a new loan, make sure that you work on your credit. It will make things easier in the long run.
5. You Don’t Have to Stick With the Same Lender
In many cases, people only consider changing their payment terms with their current lender. They never think about changing their lender as well. Yes, you may be able to negotiate different terms with your current lender, but you may also secure a better interest rate if you choose to work with another lender. So think outside of the box.
6. Surprise Fees Can Ruin Your Plans
Part of consolidating your loans is finding a lender that you can trust. Ideally, you should be on the lookout for a bank or company that has a history of being trustworthy. They should be known for their high-quality customer service. Avoid lenders that have a reputation of charging surprise fees. Early repayment and loan origination fees can add up.
7. Lump Sum Payments Reduce Your Debts
If you want to make a huge debt in your debt, then make a lump sum payment. This is a great way to shorten your payment terms. And this inevitably leads to lower interest rates. Even if this doesn’t result in lower interest, then you will still be able to reduce the total amount that you need to pay.
The Takeaway
Sometimes the only things that stand between you and a new home are your loans. The good news is, if you have a strategic plan, you can resolve these issues and move towards your goal. This is why companies like the No.1 Property Guide Australia work with future homebuyers. They understand that homeownership is possible if you access the proper resources and knowledge.
So when consolidating your loans, keep in mind that you’re only combining your debt so that you pay one lender. Know that consolidation programs and loans are two distinct approaches to loan consolidation. Remember that you can use the consolidation process to improve your credit score and vice versa. Try looking outside of your current lender for the best rates. Also, pay in lump sums as it can reduce the total amount you need to repay.