If you find your future darkening because of the load of debt that you have to pay for a large scale investment you did, you can opt for debt consolidation. Debt consolidation helps people in lifting the burden of debt off their heads. In this article we will discuss about five ways in which debt consolidation can be made effective.
Debt Consolidation-Meaning
Large scale investment requires a lot of borrowing. If you want to set up a business, you have to borrow from a relative or a bank. However, given the circumstances that the investment fails and you are almost bankrupt, you can opt for debt consolidation.A debt consolidation expert can help you out in your endeavor.
The process of debt consolidation involves a person to combine all her liabilities and loans along with the interest rates. Instead of paying a number of lenders each time, you can take a big loan and pay off other liabilities. When all the loans are repaid, you are left with one loan of lower interest rate. This will help you to pay off your loans quickly.
5 Ways to Consolidate your Loan
# Understand the debt load you have
This is the point where you need to differentiate between bad debt and good debt. Your debt consolidation expert will help you out in assessing the debts that you have collected. If your mortgage debt is less than twenty five percent of your gross income, it is good debt, however, consumer debt is considered bad. Now, you need to find out the total debt amount and the people you owe money. You also need to assess which debts claim the highest interest rates and the things on which you are spending maximum. This will help in curbing unnecessary expenses.
# Make a budget
You have already observed the things on which you spend the maximum. Now, you need to calculate and decide the average amount of money you should spend for your everyday living and savings. You also need to separate a certain amount of money that needs to be repaid. You might have to sacrifice some of your luxurious practices in order to repay the debt.
# Get the loan
• Apply for the loan
Your consolidation specialist will inform you that you need to book an appointment with a financial advisor of a bank of your choice. The best rates come from the bank that holds your debt contract.
• Papers
The most common documents asked for are two months’ statements for every credit card you have or two months’ statements for the loan that you wish to pay off. They also ask for a letter of employment, letters from repayment agencies and creditors.
• Convert
Convert your unsecured debt into secured debt. Unsecured debt is the debt from credit cards, and secured debts are from mortgages. Banks charge lesser on secured debts because they can get their money back by selling your assets.
# Pay off the debt
Unless, the lending bank decides which loan needs to be paid off first, the debt consolidation specialist will ask you to pay off the debt that has the highest interest rate. However, if there is a loan with lower interest rate that is causing you emotional stress, you should pay that off first.
# Stick to the strategy
Once you pay off one set of debts, move on to the next set. Make sure not to resume spending like before.
With the help of a debt consolidation specialist you can pay off all the money that you had borrowed for investing on a particular item. They help you in getting back to the right track and curb your spending spree.
