To enhance the effectiveness of your debt repayment strategy, one approach you can consider is debt consolidation. This essentially involves acquiring one large loan to settle two or more smaller loans. The advantage of a debt consolidation loan is that it simplifies your debt repayments into a single loan payment often with one interest rate instead of multiple payments. This aspect of convenience is what makes debt consolidation appealing to many individuals.
CHECKING YOUR CREDIT
The initial step is understanding your credit profile. It’s possible to access a free annual credit report from each of the three major bureaus. However, there’s a charge if you wish to check your exact credit score. (As of July 21st, if your application for credit is denied, you’re granted access to the free score that influenced the decision). Possession of a good credit score enhances your chances of securing favorable loan terms.
HOW MUCH CAN YOU BORROW?
Following this, assess how much you’re eligible to borrow. Several individuals opt for a home equity loan or a second mortgage for debt consolidation. If you have home equity, not only may you qualify for a tax break on the interest you pay, but you might also acquire a better rate. However, this path can put your home at risk since you’re essentially securing formerly unsecured debt with your house.
Another alternative would be a P2P loan. Displaying your commitment towards financial stability could persuade some of your peers looking for passive income to support you with an unsecured P2P loan through platforms like LendingClub or Prosper.
WHICH LOANS WILL YOU CONSOLIDATE?
Once you’ve determined the borrowing amount, it’s time to decide on the loans to consolidate. Consider your loans based on balance, interest rate, and other relevant factors. If approved for a lower interest rate loan, it’s prudent to pay off those with the highest rates first.
If you opt for a home equity loan through a mortgage lender, the lender will likely repay the chosen loans directly. For funds received from other sources, you’d need to ensure that you manage the repayments independently. Remember, the goal is not to accumulate extra debt but to facilitate the repayment process.
