Are debt consolidation loans easy to get? Ask the Expert!
My debt is growing and I’m sick of stressing about payments. I want to pay it down. In talking with my friends, I heard that consolidating my debts is the fastest and most effective way to pay them down. How do I consolidate exactly? I know that my bank offers consolidation loans, but are they easy to get? I fell behind with some credit card payments a couple of years ago, so my credit isn’t perfect, but I am back on track now. What should I expect if I go see my bank?
Marty K, Kelowna B.C.
You are absolutely right that when you are dealing with debt and eager to repay it quickly, consolidation is the way to go. That is because when you make minimum payments on your credit cards, most of the payment is going towards interest, so it takes quite some time to actually pay the debt off.
When you consolidate your debts, you combine all of them into a single payment and lower interest rates, which lets you apply more of your payment to the principal of the debt, making it come down faster. You pay less interest too because you can pay down your debt more quickly. Consolidating into a single payment can help with your cash flow as well, which will help you stay on budget and avoid accumulating debt again.
One option to consolidate your debts is to obtain a debt consolidation loan from a financial institution. In order to qualify for the loan, you need to have enough income to support the payments. You also have to have a decent credit score (what the score actually is depends on the financial institution). In many cases, you need to have a positive net worth (i.e. own more than you owe).
If you have any assets that you could put up against the loan (i.e. a car or something of similar value) that the bank could hold as security against the loan, you have a greater chance of being able to take out more money. Banks are less willing to lend out a lot of money on an unsecured basis, because it is riskier.
If you think that you might meet these criteria, make an appointment to see your lender. Accumulate all of your debt statements that you’d like to include with your consolidation loan. Bring paystubs (for at least three months). If you have any assets that you can use for collateral, bring that information along as well.
Some financial institutions may require you to close credit cards as a condition of receiving the consolidation loan. If you don’t close the cards, make sure that you don’t rack them back up again. Not only will you have the consolidation loan payments to make, you’ll have a whole new debt problem to deal with.
If you don’t qualify for a debt consolidation loan, seek other options, like perhaps a DIY debt consolidation where you combine your debts via a balance transfer if you have room on an existing card.
Good luck with consolidating your debts and becoming debt-free.