Once you have decided on debt consolidation, you now have to choose your debt consolidation loan product. You have many choices, but not all of them will suit your purposes. Therefore, you must carefully check each one of your options and consider the following factors before you choose the debt consolidation loan for you.
Naturally, you have to find out what interest rate you will be charged by a certain debt consolidation loan. If you are going to consolidate your existing loans, then you’d better find a loan that charges a lower interest than any of your current loans. It doesn’t make sense to transfer your balance from a low-interest loan to a higher- interest loan, does it?
Apart from looking at the standard variable percentage rate (VPR), you also have to check the promotional VPR. Most loan companies offer introductory loan interest rates to entice people into applying for a loan. These introductory loans are precisely that – they will last only for a certain period of time. Therefore, be careful about signing up for a debt consolidation loan that has very good introductory rates yet have higher than average VPR afterwards.
When does the loan have to be paid in full, and how much minimum payment do you need to cough up every month? These are the two most pertinent questions that you need to ask before you take up any debt consolidation offer.
Theoretically, a loan with a short repayment period typically means greater savings since you won’t spend decades paying interest. However, you also need to be realistic. If you take out a short-term loan and miss out on a payment because the monthly minimum dues are too high and are much more than you can possibly pay, then your interest rates will soar when you default on a payment. You will lose out more in the long run.
So , before you take out a debt consolidation loan, make sure that the terms are manageable and attainable given the current state of your finances.
Credit Limit or Face Value
How much money will be lent to you? If you’re taking out a line of credit for debt consolidation, how much credit will be extended to you? It is important that you know from the start if the amount of money the bank will lend you for debt consolidation is enough to cover all of your existing loans. Otherwise, you will not succeed in consolidating all your multiple loan balances into one.