Many people become curious about debt consolidation because of advertisements with low interest rates, but for many these loans may be a dangerous way of sinking even further into debt. However, if you have chosen to use a consolidation loan, it's important to understand what kind of interest rate you qualify for and choose the right lender, then make a firm decision to keep your debt paid off.
Credit Report
Find out where you stand financially so that you have a better grasp on what type of interest rates you can get. You're entitled to a complimentary copy of your credit report each year from the three major credit bureaus, Experian, Equifax and TransUnion. By logging onto the Annual Credit Report website and providing your information, you'll gain access to your credit reports. If you find any discrepancies, it's vital to report them to both your creditor and the reporting credit agency immediately to get your score to its healthiest point. The credit report does not contain your credit score; however, you will be given the option to purchase your score for a nominal fee after viewing your report.
Choosing a Lender
Although you may have received advertisements in the mail or online about qualifying for ultra-low interest rates on consolidation loans, those rates are generally reserved only for those with high credit scores. It's important to shop around for a consolidation loan to make sure you're getting the best interest rate possible. Look not only to banks, but also to credit unions, which may have better offerings. Lenders should be able to pull up an estimate offer based on your consumer credit report without making a hard inquiry so that you may shop around while avoiding damage to your score.
Utilizing the Loan
Many people abuse their consolidation loans and end up back in debt in a short amount of time. A debt consolidation loan eliminates your current balances, which means that the accounts that are paid off are open for spending again. Rather than racking up balances on those accounts again, you must remember that your debt has simply shifted places, not been paid off. You must make a firm commitment not to spend on those accounts if you want to dig yourself out of debt for good.
Considerations
For those who have a difficult time managing their money, a credit counselor may be able to assist in not only finding a consolidation loan, but also in creating a budget and helping you to avoid ending up in a bad situation again. In addition, a credit counselor may offer you alternatives to debt consolidation that are more appropriate for your financial situation. To select a reputable credit counseling organization, find recommendations on the National Foundation for Credit Counseling website.
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