If you're considering a consolidation loan, it's vital that you prepare for the process by making sure you need the loan and that you're really using it because you're ready to pay off your debt, not just because you're going to contribute further to your debt. Once you decide that the loan is right for you, find the lowest rates by making yourself a viable candidate and by shopping around.
Improve Your Credit Score
Get your credit score up. Often, the ultra-low interest rates advertised for consolidation loans are only available to those with very high credit scores. Order your credit report for free from the Annual Credit Report website (see Resources), then go through it with a fine-toothed comb. If you discover any mistakes, report them immediately in writing to both your creditor and the credit bureau. Include a letter and documentation of the error. This is one of the fastest ways to improve your credit score.
Lower Current Interest Rates
Request lower interest rates on your credit cards. You may find that the interest rates offered by your credit card company end up being better than the rates you're offered with a consolidation loan. Because consolidation loans are viewed as potentially negative to lenders, it's better if you can resolve your debt without one.
Shop Around
Check on consolidation loan rates at credit unions. According to Bankrate, credit unions are often more lenient and offer better interest rates than banks. Shop around and compare all your options, then calculate whether the loans offer you enough of a decrease in your interest rate. Lenders may be hesitant to offer you new credit when you're on a consolidation loan, so the decrease in interest must be dramatic enough to be worthwhile.
Commit
Make sure you're 100 percent committed to paying off your debt. According to Cambridge Credit Corporation general manager Chris Viale, 70 percent of people who take out debt consolidation loans end up with the same amount or more debt just two years later. People often fall prey to the lure of using the newly freed credit that comes from old balances being wiped out by the loan. If you're not dedicated to paying off your debt and keeping it off, you may get yourself into even more trouble.
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