There are many ways of paying off your debts and increasing your credit score, and one of them is debt consolidation, which is the focus of this article. If you are planning to pay off your debts through consolidation loans, we got you covered. Below are some pointers that you will surely find useful if you are clearing off your debt with a consolidation loan. Even Without further ado, let’s start:
Avoid using your credit cards
When consolidating your loan, you should avoid using your credit card since it negates the point of consolidation. If you find it hard to not use your credit card, you can use the commitment “methods” that are generally used by people who try to avoid the temptations of using their credit cards, such as locking it up, and in some extreme cases, even cutting their card. Meanwhile, if you are not easily tempted, you can just store your credit card in your wallet as usual.
However, one thing that you shouldn’t do regarding your cards is closing your accounts. You will have a chance of negatively affecting your credit score by doing so. Keep your account active and use the minimum required to keep it active, but do not close it. If you stay committed to not using credit cards while going through a loan consolidation, you will soon find your debts cleared in no time.
Evaluate consolidation loans on the market
Before signing up on a loan consolidation contract, be sure that you have already evaluated all of the options that you have. You can do soft inquiries to gauge your options without hurting your credit score. When choosing a debt consolidation loan package, consider a loan that directly transfers the payment on your creditors. This way, the temptation to use the money intended for loans on other things will be completely gone.
Debt consolidation credit normally has an interest rate that is lower compared to credit cards. The interest rate is mainly dependent on the credit score of the borrower, and how much loan they have on their name. You will have greater chances of getting better loan offers if you include all your sources of revenues aside from your salary. This may include any passive income you might have, like rent, royalties, etc. You can also include freelance work and other irregular income, but don’t expect them to have much of an impact on your ability to get a good loan. Nevertheless, it is still worth trying.
Join up with support groups with the same goal as yours
People generally underestimate the effects of having a support group in which people can freely discuss their loan experiences. You can get motivation from people who successfully cleared their debts using loan consolidation. You can also get encouragement from people who are going through the same hardships as you are. Support groups can include people in online forums or groups, your friends, loan support groups, or a family member that you are comfortable with. You can even make use of applications for mobile phones offering debt support for people who need it.
Most common debt consolidation methods
Credit card balance transfer
Credit card balance transfer is a DIY debt consolidation that involves transferring all of the balances of your multiple credit cards in a low-interest credit card that you take out solely for that purpose.
There are many advantages to a credit card balance transfer. First, they provide you with the opportunity to pay back your combined balances without any interest throughout the introductory period of the credit card, allowing you to save money on interest payments. It will also save you the headache of paying multiple cards with different monthly dues and due dates, allowing you to just pay a single card and be done with it (at least for the month.) The credit card provider might also provide you with other benefits, such as travel funding or other monetary incentives. Additionally, other cards come with a longer 0 interest rate introductory period, while some completely waive transfer fees.
Personal loans are one of the most popular methods of loan consolidation since it is an easy and quick way of merging multiple debts in just a single one. Personal loans do not need the borrower to provide collateral, with the drawback of being required to have a high credit score before you can qualify for one. However, there are certain licensed moneylenders in Singapore that will provide a loan to you even if you don’t have a really high credit score.
One of the advantages that personal loans have over other loan types such as credit card balance transfers is fixed interest rates. Due to this, you will have a reliable knowledge of what to expect to pay every due date, as opposed to credit cards that can have fluctuating interest rates.
Home equity loans
Home equity loans will enable borrowers to get money by using your home as collateral. Since this loan is secured, it has much lower interest rates compared to the other loan types on this list. However, the amount that you can borrow is limited to a percentage of the total equity of your home.
Although this loan can be handy due to its low interest rate and the duration of payment, you should be careful about your monthly payments when using this type of loan for consolidation. Since you will be using your own home as collateral, you will risk foreclosure in case you fail to pay.
Are you interested in taking out a loan for your loan consolidation? Get one now from A1 Credit.