Facing difficulty with paying the bills every month for your multiple credit card debts or any other for that matter you may consider looking for a debt relief. Your friends, family, coworkers and even the websites that you look for may suggest debt consolidation to be the most feasible debt relief option of all.
Well, it may be for them but not for you because the type of option you will choose will largely depend on the factors such as:
- Your present financial condition
- Your needs as well as
- Your eligibility and affordability.
Therefore, not overlooking their suggestions, you will be better off if you do some research yourself to know more about debt consolidation loan, compare your findings with other available options and then apply for it being well informed.
Debt consolidation and personal loan
When it comes to financial terminologies it is very easy to get confused with it. This is the reason why most people mix up a debt consolidation loan and a personal loan. Typically, a debt consolidation loan is a special type of personal loan. Here the creditor will provide you with a loan amount that you can use to pay off your numerous debts.
While applying for this type of debt consolidation loan you should remember a few points such as:
- It is important that you clean up your credit report as a first step to acquire such a loan because this is the first thing that the creditor will look into as an evidence for your ability or inability to repay the amount you wish to borrow. The higher is your credit score, the lower will be the rate of interest the creditor will charge for your debt consolidation loan. Therefore, your credit report or credit score is the most important tool for any creditor whether it is a traditional bank or any online money lender such as Libertylending.com. Make sure that before you apply for a debt consolidation loan you get a free copy of your credit score and report and look into it closely to make sure that it reflects your financial story accurately.
- Once you find that your credit report is perfect in all respects, go to a bank or a credit union or any online lender to fill up the debt consolidation loan application form. Furnish all the relevant details in it such as your income, your employment, and number of years on the specific job and others that are relevant financial information that will help the creditor to determine your ability to repay the loan.
These two steps are very important as the loan officer will use the information provided by you to determine whether or not you qualify for the loan. It will also help them to determine the interest rate that you have to pay for the amount desired and for the length of time you have to make the payments along with other terms and conditions for your loan.
Experts say it is best to apply to several lenders so that you can compare the terms and conditions put down by each before you make any final decision.
Debt relief and debt consolidation
There is also a significant difference between debt relief and debt consolidation no matter how confusing it may sound belonging to the same family of financial solutions.
- A debt consolidation loan will be designed in such a way that it helps you to pay off the full balance of your multiple debts. It actually involves a strategic debt management program though which you can combine your multiple bills into one monthly bill with the aim to eliminate it over a period of 3 to 5 years.
- Debt relief on the other hand is inclined more towards paying off a part of your debt and has the remaining part of it forgiven.
Some of the typical debt relief examples include debt settlement and bankruptcy which in turn has its own significant attributes that makes one different from the other.
- Debt settlement is the process where you offer the creditor a percentage of the total amount of money owed. This percentage usually ranges from 50% to 75% and is made with a hope that the remainder of the bill will be forgiven and the loan will be cancelled.
- Bankruptcy on the other hand is actually a nuclear option of debt relief wherein you declare that you are unable to pay the debts off and therefore request the bankruptcy judge to provide you relief from your legal obligations and your creditors. However, proving your inability is not an easy task and will need a lot of evidence and documents for that matter.
Both these debt relief options typically have a very dire effect on your credit score and credit history. It will not only lower your credit score near or less than 500 but the fact will also be recorded in your credit history and remain there for a period of seven to ten years thereby reducing your future borrowing ability by a dramatic margin.
Financial education
Strange as it may sound, you should not forget about the financial education aspect to know about the difference between debt consolidation loans and debt management programs.
- Any nonprofit credit counseling agency will need to provide you with teaching tools that will help you to avoid such debt issues in the future. These tools can be made available online in the form of newsletters or through educational books. These tools will help you to identify things that are cause such financial problems along with the relevant solutions for each. This knowledge will help you to ensure that you avoid these similar problems in the future.
- On the contrary, the lending institutions do not require teaching their consumers about good financial habits. However, most of these financial institutions have their websites that contain different educational materials articles and blogs that may help you to stay out of debt.
All this information will surely prove to be more result-driven providing you with the results just as you expect.