A debt consolidation loan is often times frowned upon by financial experts. However, you need to realize that even if it does not make sense to use a loan to pay off your other debts, it is still, theoretically, an effective way to get out of debt. There are people who have gotten out of their credit problems because they knew how to use this debt relief option properly.
There are two key factors to make this debt solution work for you. One is to change your attitude and stay committed to the program. Regardless of the program that you will choose, whether it is debt management or debt settlement, this is an important part of your debt relief efforts. You need to identify why you got yourself into so much debt and try to change the habits that led you there. It can be your impulsive buying habits or maybe because you do not have a sufficient emergency fund. Either way, correct the root cause so that this will be the last time that you are burdened with a huge credit obligation.
The other key factor in the success of a debt consolidation loan is how you choose the loan that you will use to pay off your other debts. There are questions that will have to be asked. Here is the list and the respective answers that you should get.
Are you qualified to get a debt consolidation loan? There are certain qualifications to get a loan and this applies to this debt relief option. For instance, you need to have a steady job that can accommodate the payments on the loan you are getting. Ideally, you should also have a good credit score or a collateral to get a low interest rate on the loan. It will help you achieve the goal of paying a lower monthly amount.
What will be the new payment term? As mentioned, the goal of debt consolidation loan is a lower monthly payment compared to your current. If you cannot achieve this, then opt for another debt relief program. If the loan that you will get offers a low interest rate during the first few months, make sure you take advantage of it and you incorporate it in your payment plan. Target a huge decrease in your balance during those months. This way, the balance that will be given a high interest after the intro period is over will not be too much.
Can you afford the new payment term? Even if the monthly payments are lower, check if your budget can afford it. Sometimes, even a lower monthly due is not enough to fit your limited resources. If this is the case, then you need a debt solution that will provide you with a reduction on your current balance.
Have you checked the alternatives? After analyzing your financial capabilities, you need to check if there are alternatives that will give you a better payment option. Debt management may be an option that you can consider. Or if you want debt reduction, debt settlement is a viable option for this.