What is debt consolidation? Debt consolidation is a concept that is used in managing debt that has become unsustainable. It involves replacement of all your debt repayments with a single payment source that is a lot easier to manage. It is also called debt refinancing and you are the borrower, will take out a single loan, sometimes at a lower interest rate, in order to replace all the other loans which are becoming harder to manage.
People take up consumer loans for a number of reasons such as paying mortgage, credit card loans, buying a car or solving some short-term financial emergencies. This is what is known as consumer debt. The problem is that many people eventually pile up on this consumer debt, particularly on the credit card debt at high interest rates. Very soon, they find all these payments unmanageable and they find themselves at risk of default or going bankrupt. One of the best ways in which you can sort out your financial mess is by applying for debt consolidation. In order to get a good debt consolidation option that will be beneficial to you, there are certain steps that you need to follow. These include the following:
Lookup your credit reports as well as the credit score
Apply for your credit reports from all the three credit reporting agencies. You can do this at least once per year for free. For subsequent requests, you will have to pay a fee. It is important to review your credit reports first in order to ensure that you are eligible for debt consolidation agreement with your creditors. The credit reports must have a list of your debts.
Take your debt inventory
Make a list of all the debts which you owe your creditors on all the loans and cards that you want to consolidate. Look at the interest rates of these debts as well as each of the monthly payments. Here, you will need to prioritize on those debts which are most important to you. You will need to begin consolidating those balances which have very high interest rates as these are the ones most likely to sink you financially.