Over the course of going through college, securing a new apartment or home, and then filling up that new apartment or home with furniture or appliances, you will likely accrue some debt.
You may also end up compiling debt because of hospital bills and all sorts of other payments an average adult will inevitably have to make.
The point here is that unless you are lucky enough to be born into wealth or have already created your own, you will probably have to borrow money at some point in your life and you will likely have to do so from more than just one lender.
It can be difficult to keep tabs on different loans. It can be even tougher to pay all of them on schedule over an extended period of time.
To make things easier on borrowers, certain companies such as Roseland Associates will offer what is known as debt consolidation loan.
What Exactly Is a Debt Consolidation Loan?
To put it in the simplest terms, a debt consolidation loan is something an individual can seek if they want to combine all their outstanding debts into one easier to track amount. The loan you secure is used to pay off your remaining debts and liabilities, per Investopedia.
With that out of the way, what you’re left with is a larger, single debt that you will have to pay. If you secure a debt consolidation loan from a company such as Roseland Associates, you may even end up with more favorable terms on the remaining amount of money you need to pay.
What Are the Different Types of Debt Consolidation Loans?
There’s more than one kind of debt consolidation loan.
The first type of debt consolidation loan is known as an unsecured loan. Not everyone will be qualified to receive this type of financial assistance.
Because unsecured consolidation loans are not backed up by any type of collateral, creditors typically attach higher interest rates to them. Still, the interest rate for an unsecured consolidation loan is usually lower than what you’ll see attached to credit cards, which is part of the reason why this option appeals to many borrowers.
Unlike the unsecured consolidation loans, the secure options are backed with collateral. You can use your house as collateral for a secure consolidated loan. If you want to minimize your risk, you can also borrow against a car or some other valuable possession.
The beauty of taking out a secure consolidated loan is that you will usually get a better deal on its interest rate. Then again, if you fail to make your payments, you could lose something of great value, so choose your debt consolidation loan wisely.
The Balance notes that some people may also be qualified to take out what is known as a student consolidation loan. When you apply for this type of consolidation loan, all of the debts you still owe to a variety of lenders will be combined into one larger loan.
A student consolidation loan is typically paid over a longer time than an average student loan. However, the interest rate will be fixed, so you don’t have to worry about paying a larger amount of money as time passes.
By the way, if you are interested in taking out a student consolidation loan, you should know that you have to be a college graduate in order to qualify.
Should You Go for a Debt Consolidation Loan?
Now that you know more about a debt consolidation loan is, the next step is figuring out if it’s right for you.
The idea behind debt consolidation is undeniably appealing.
Even though you won’t get rid of your debt in one fell swoop if you decide to pursue consolidation, you can at least make things significantly more manageable.
Think of it like your college professor helping you out by telling you that you can just concentrate on studying one particular topic for an exam. Instead of having to spread your time and energy reading up on a bunch of other subjects, thus increasing your chances for failure, you now have a better shot at passing because you know what to expect.
The test may not necessarily be easier, but you can prepare yourself better for it.
To be clear though, a debt consolidation loan does not necessarily work for everyone.
Reasons Not to Go for a Debt Consolidation Loan
NerdWallet has pointed out certain scenarios in which applying for a debt consolidation loan is not in the best interests of the individual.
The most obvious scenario is if the already existing debts are already close to being paid off completely. In situations wherein your debt can realistically be paid off in just a few months, there’s no real need to secure a consolidation loan. You would just be wasting energy and time needlessly.
The not quite as obvious scenario in which pursuing a consolidation is not ideal is if you know that you will have a hard time reining in your spending moving forward.
We’re not talking about you being irresponsible with your money here. For parents, making sure there’s food on the table takes precedence over paying off debt. You may simply be unable to curtail your spending at this point in time and the best you can do is to tread water and make some delayed payments.
In a situation like that, you don’t want to compound your problems by consolidating your debt, especially if the penalties from being late could be more onerous.
Also, since debt consolidation loans have more extended lifespans, you may just effectively put yourself in a financial hole for longer than you need to be and that is obviously not ideal.
Reasons to Go for a Debt Consolidation Loan
Consider debt consolidation as something you take on when you have mostly put yourself in a stable place financially.
If you’ve already landed a good-paying job and the only things left on your checklist are some outstanding debts from your younger days, you may benefit from consolidating all of them, lowering your interest rate in the process, and also mapping out a clearer financial future for yourself.
Let’s say that you always did have a job that paid well, but the younger version of yourself had bad spending habits. In the past, going for debt consolidation would have been a bad idea for you. Now that you’ve learned your lesson though, it will make more sense to just wrap all your debt up into one neat little bundle that you can chip away at.
This may also be an obvious point, but it warrants mentioning anyway. If you have decided to apply for a debt consolidated loan, you should also be prepared not to take on any additional debt.
The point of consolidating is so you have one target to focus on. Adding new debt to that would just be self-defeating.
How Can I Get Approved for a Debt Consolidated Loan?
After learning more about who should and shouldn’t apply for debt consolidated loans and discovering that you’re in the former group, you may understandably be curious about what it takes to actually secure one.
Listed below are the things you need to keep in mind.
1. Check Your Credit Score
The first thing you need to do if you are indeed interested in applying for a debt consolidated loan is to check your credit score. Essentially, the type of credit score you have may either give you greater flexibility or confine you to a single path.
Is your credit score in a good place? If it is, then you have more options to consider moving forward.
In contrast, folks who are trying to get a debt consolidated loan with bad credit will likely have to either spend time improving their score first or make the most of the option they have.
2. Choose the Type of Loan
As noted above, you may have limited options regarding what type of debt consolidated loan you can take out if your credit score is poor. You may have no other choice than to go for a secure consolidated loan if you have bad credit because those have “looser credit requirements,” according to USA Today.
Yes, you’ll have to put up your own property for this loan, but it’s not all bad as you may get a friendlier interest rate.
People with better credit scores can choose between the secure and unsecured loans. Unsecured loans may be tougher to pay off, but at the very least, you won’t have to worry about losing something valuable should some unforeseen problem pop up in the near future.
3. Look for Your Lender
The next step involves actually looking for your lender. You may not even need to calculate how much you need to borrow beforehand because your lender may help with the calculation.
Be sure to research before approaching any specific company though. Aside from saving time, you can also maintain your current credit score if you don’t have potential lenders checking up on it frequently.
By carrying out your research and pinpointing your ideal lender right away, you are effectively increasing your chances to get approved.
Applying for a debt consolidated loan can be a great move if you know what you’re getting into. It is certainly not one without a risk, but as long as you’re properly prepared and secure your loan from a reputable company such as Roseland Associates, things should work out for you in the long run.