Debt consolidation loans have a lot of attractions on paper, namely their potential to pay off your credit cards in one go and the ability to reduce the amount of interest you pay. However, before you can reap the rewards of a successful debt consolidation loan, you must apply … and lenders must see you as a risk worthy enough to approve.
The first step towards eliminating debt through a consolidation loan is to simply qualify for the said loan. Here are some tips to help you maximize your chances of getting the loan that you will use to reduce your debt.
Raise your credit score before you apply
What has the most influence on the approval or denial of a consolidation loan? Your creditworthiness, of course. This means that it is in your best interest to make sure that it is in top condition before you send your requests to lenders.
You may be shocked to learn that one in five Americans had an error on at least one of their reports, according to the Federal Trade Commission. Additionally, about a quarter of consumers found errors in their reports that could affect their scores.
This means that regardless of your score, it’s worth checking out every report periodically: Experian, Equifax and TransUnion. If you see an error – such as an inaccuracy in your payment history or a duplication – you can dispute it by phone, online, or by mail.
Then do what you can to optimize your score, such as paying off some of your debt to make your debt-to-income ratio more favorable or asking your current creditors to increase your limit to optimize your credit utilization rate. You’ll have a better chance of obliging them if you’ve built up a history of on-time payments and responsible use.
Bad credit? Know all your options
Sometimes, even with disputed errors and your credit score strengthened as well as it can be right now, you can still find yourself outside the requirements for the most credit card debt consolidation loans. competitive.
The reassuring news is that there are a few possible avenues to explore here if your credit rating alone isn’t doing quite the heavy lifting you need.
One option is to have someone you trust vouch for you by agreeing to co-sign the loan. If they have higher credit than you, it can increase your chances of getting approved. However, this is not a hasty decision. Realize that they will be just as responsible for the total balance as you are – and if you fall behind in payments for any reason, their financial health is at stake. Make sure you have a written agreement and have discussed the matter. all the details together before going ahead, as you don’t want a co-signing situation to deteriorate.
Another possible option on the table is to look for a secured loan. The warning ? You will need to offer an asset to support this type of loan, such as a vehicle, house, or other high-value asset. The lender will be able to seize this collateral if you default, but this reduces the risk for the lender up front so that they are more willing to lower your interest rates and give you the seal of approval.
Qualifying for a debt consolidation loan usually involves making your credit score as strong as possible, which can require a combination of challenging mistakes and paying off as much debt as possible. If you still find that your credit score is insufficient to meet the threshold for conventional consolidation loans, adding a co-signer or looking for a secured loan – albeit risky – can help you get approved.
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