Being in debt is everyone’s worst nightmare. However, you would be surprised to learn how many people face this challenge. If you are currently one of them, you are probably looking for a way to pay it off and continue your life stress-free. Here, you have several options, and debt consolidation is one of them, which is why we will discuss it in the following article.
What is debt consolidation?
In a nutshell, this process enables you to combine all your current debts into a single one and pay it off by monthly fees. There are several pros and cons of this process. For example, you will have fixed monthly expenses, which will allow you to plan your finances for the foreseeable future. This fee will be lower than our usual monthly cost before consolidation, but keep in mind that interest rates can be pretty high. What’s more, this entire process includes additional fees, such as setting up the loan, balance transfer, and in some cases, there are annual fees.
How does it work?
Now that you know the basics of it let us explain how this entire process works in great detail. First of all, you need to find a lender. As already mentioned, debt consolidation enables you to have one loan to pay everything off instead of having several ones. When it comes to finding a lender, you have to be very careful and thoroughly inspect the way they conduct their business. You can choose between a bank, credit unions, and online lenders. If you want to learn about some general requirements you have to meet, visit the Credit Associates Dallas TX website.
Once you make a choice, you will have to submit your application. The lender will go over your credit score and debt-to-income ratio, that is, what percentage of your monthly income will go to the debt payments. In addition, you have to provide them with detailed documentation regarding your credit score, income, mortgage, overall finances, insurances, and so on. The lender will inspect all of these and then decide whether or not they will accept your application. If they accept it, they may provide you with the money to pay off the debts, and then you will owe them, or they may provide you with a line of credit. This is something that depends on the lender you choose.
Types of debt consolidation
Finally, there are a couple of types of debt consolidation. The two main ones are called secured or unsecured loans. When it comes to the former, you need to put some of your assets as collateral. Maybe your apartment, property, or car. This is a requirement you have to meet to get the loan. It sounds pretty easy, right? Well, the thing is that if you miss a payment, the lender can go and cease your collateral, leaving you with nothing.
On the other hand, you can opt for an unsecured loan. You do not need to put collateral for this one, but there is another problem. Since the lender knows this loan is riskier, they will present you with higher interest rates. Therefore, these will significantly increase your debt, and you may not be able to afford the payments.