Consolidation Loans and Balance Transfers

by John Stevenson on May 1, 2014

Consolidation is one option for borrowers with excessive debt. It is crucial to make timely payments because late or missed payments will affect your credit score.

Balance Transfer Cards and Consolidation Loans

imgOne of the benefits for borrowers is that they are offered a single loan to pay off multiple debts. Borrowers make one payment instead of having to worry about multiple deadlines and monthly payments. Another option is to consolidate high interest credit cards to avoid interest charges. Financial institutions offer various low interest, no annual fee, and other credit cards with introductory periods. Applying for a balance transfer credit card is one way to reduce the total payment amount. In general, this is a solution for borrowers with multiple loans and credit cards who are behind on their payments. Borrowers find this solution beneficial because more of their payments go toward the principal. You may want to apply for a loan with a competitive fixed interest rate.

Requirements and Criteria

Financial institutions look at factors such as the applicant’s overall stability, employment history and earnings, payment history, and whether collateral is offered. A secured loan is one solution for borrowers with a less-than-perfect credit score. Your credit score is based on types of credit used, amounts owned, and more. Creditworthy applicants are offered better deals than borrowers with fair credit. Banks want to make sure that applicants are able to meet their monthly payment. Your earnings and other sources of income are another factor that plays a role. Ask your bank about acceptable sources of income.

The Application Process

Financial institutions are interested in your debt load, including credit card balances, home equity lines of credit, and others. Look at your monthly payments, interest charges, prepayment penalties, penalty interest, etc. The requirements vary from lender to lender but it pays to know your options. Then you can approach different lenders or use the services of a professional. There are different options to consider, including revolving and installment credit. Many creditors will be willing to cooperate if you are in danger of bankruptcy.

Alternatives to Consolidation

If you do not qualify for a debt consolidation loan, consider alternatives such as credit counseling, negotiating with creditors, consumer proposal, formal proposal to creditors, and self-money management. Declaring bankruptcy is a last resort. Negotiating with creditors, for example, is an arrangement whereby financial institutions agree to receive a portion of the outstanding balance.

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