Thinking about Debt Consolidation? Things to Consider

Debt consolidation is not a small concept that you just take one loan to pay off all other loans and that’s it. There are so many things in this which have to be considered if you are seriously thinking about debt consolidation. That is why, if you are thinking about it, you must learn what other factors to consider.

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Do you really know all about debt consolidation, the process, its impacts, the significance, etc.? If not, then now is the time to learn.

Debt consolidation

Debt consolidation does not relieve you completely from debt. It’s just a process to reduce the burden on you by lowering the rate of interest you had been paying so far. It’s just a process that transfers the cumulative loan amount you were paying into one single loan account so that handling the debt gets easier. It’s just a method to reduce the number of small and big loans into one single loan, so that debt management gets easier while EMI also gets lower. As an example, if you have student loans, debt consolidation can help you achieve a lower student loan interest rate. You can get clearer ideas from

Low-interest rate balance transfer

Some finance companies offer a low-interest rate balance transfer system. If you are already indebted to a finance company, then you may be offered this program by them. Sometimes many credit card companies also offer the same. They would tell you to transfer the loan to a lower interest rate. They might take a processing fee of one time for this, or may increase the tenure of the loan so that you can pay a small amount over a longer period of time at ease to pay back fully. If you get any such offer, do inquire in details.

Do you have a sound credit score to apply for a debt consolidation loan?

You must check your credit score before applying for the consolidation loan. If you don’t have a good credit score, you won’t be approved for this. And to build a better score, you should try to pay off all small dues and debts on time. The fatter dues may be a problem, but you can certainly pay back the smaller dues like small credit card bills, etc. and as you pay them back, and maintain the account, you build a better score and history to persuade creditors to lend you the debt consolidation loan.

Persuade cardholders to lower your credit card rate of interest

You can talk to your credit card company to lower the rate of interest on your credit card. This may help highly. The credit card company may approve the request when they see a sound credit score and your creditworthiness through your timely repayment practices.

Apply for a personal term loan

A personal term loan is a great way to get a funded through a low-interest loan. These loans usually have a lower rate of interest than credit card loans, and you can make use of them to pay the credit card dues too.

Pay higher each month to terminate the debt soon

If you can manage to pay off your debt sooner, go for it. Review your monthly budget again, and find out how you can pay off the debts sooner in a shorter term. Try to squeeze out the highest amount per month to pay off the loan soon.

The home equity option

Debt can be consolidated without going anywhere for a consolidation loan when your credit score is not supporting. Instead, you may try to get home equity approved. If you can get a second mortgage of the home, and take a loan on the equity, then your existing debts can all be cleared off. You will only have to ensure that you pay back the home equity loan on time and avoid losing your home by defaulting this.

Compare and apply

Compare the options before you apply. If you have the option to get a home equity loan and a personal loan, then compare the total processing fees,interest rates, registration and valuation charges, and all such small and big charges involved. And then finally you will see how much you get in hand, and much you have to pay each month to pay back the loan. In this way, you can decide which would be a better deal, provided you have a sound credit score to apply for any and get any.

HELOC advantage

The advantage of a home equity line of credit loan is that; it is generally offered at a low rate of interest than usual loans, and also you have the flexibility to pay it back as and when you have the money within a period of time. Therefore, you do not get pressurized to squeeze out a certain amount each month anyway. And this is good if you look at it from the flexibility factor. However poor handling of the loan and low payments can bring on a problem on you.

Check the mortgage rate

If you are considering paying off existing debts by mortgaging the home, then you must consider getting a fixed rate mortgage. Mortgages are offered on variable rates and fixed rates. If you are getting a fixed rate mortgage, then it would be a good thing, because any fluctuation in interest rate won’t affect your EMI and monthly budget.

Can you pay back more in a month when you have more funds?

Most loans would get repaid by a fixed EMI. Only in the case of HELOCs, it is not so. And again, there are some consolidation loan options where you may pay an extra amount when you want to. This lowers the later EMIs too. Therefore, while seeking a debt consolidation loan, do consider this option of extra payment, if in any case, you have more money to pay back in a month. You may get some bonus or commission or extra income from a source, which you would like to use for paying.


There can be great debt consolidation options if you have the knowledge to judge them anyway. Hence you must develop a sound idea of the options before you go for any.