Debt consolidation loans can be a very effective way of getting on top of your debt, however, before getting one, you need to ask some critical questions so that you can take the best-possible loan. Some very important questions that you should ask before taking a debt consolidation loan:
Are You Eligible for a Debt Consolidation Loan?
If you have really let the credit card debt mount up in such a way that your credit score has been badly affected, you may find it difficult to get a debt consolidation loan from the more established companies. While you may still approach some of the companies that specialize in giving loans to people with bad credit, you will find that the terms of the contract, including the interest rate applicable, quite stiff.
What Is the Interest Rate on the Loan?
It is the rate of interest that will be charged on the loan which will dictate how expensive the loan is and whether you will be able to afford it. The lower interest rates that are typically advertised by private debt consolidation loan companies are given only to applicants with very good credit. If your credit history is poor, you may have to pay a really high-interest rate that may not really be worthwhile.
Are You Getting a New Loan or Just Debt Management Advice?
There are numerous debt consolidation programs that offer credit counseling and not a fresh loan. If you are looking out for a debt consolidation loan be sure to ask whether the program is actually one that will offer a completely new loan and not enroll you in a debt management plan. If you are getting a new loan to cover your debt, then find out whether your old debts will be repaid immediately or over a period of time.
What Is the Period That You Are Allowed to Repay the Loan?
It is a normal ploy by debt consolidation companies to attract customers by advertising a very low repayment figure per month. You should appreciate that it is in the interest of these companies to offer you a very long repayment period so that the monthly amount becomes lower, however, in the process; the total interest earned by the company is far more. If your cash flow is really under pressure, you can take advantage of the low monthly payments initially till you get your finances in order and then try to pay back the loan as fast as possible to save on the interest. Make sure that the repayment terms allow you to do so.
Before signing on the dotted line, you should further make sure that you are getting the loan from an established company and not being drawn into one of the many scams operating to take advantage of gullible people. Never pay any upfront money for getting a consolidation loan and make sure that there are no surprises hidden in the fine print of the agreement.