A consolidation loan is a larger balance loan to pay-off smaller balance debts, such as credit cards or small personal unsecured loans.
Consolidation loans assist in combining your debts into one single payment.
Some of the key benefits to a consolidation loan include:
-A key benefit is the convenience of making one payment instead of making several smaller payments.
-In most situations, the single payment is smaller than the smaller payments combined.
-If you have a good credit score, your interest rate may be a lot lower than those on credit cards.
-With the consolidation loan, you can decide on how long you want to take to pay-off the loan balance.
-It will help you to stay on track with your budget and controlling your finances.
Some of the disadvantages to a consolidation loan are:
-If your credit score is not that good and your interest rate is high, the only way to lower your payment is to stretch the payments over a longer term. When this happens, you will pay more interest unless you make extra payments and payoff the loan earlier than the contracted term. If you are able to make higher payments, verify with the financial institution that there is no prepayment penalty.
-If the financial institution you are getting the loan from requires you to close all your revolving debts after you consolidate, it can hurt your credit score because your credit capacity (total available credit) has been reduced and often you may lose the older credit history, which will impact your credit score.
-After you consolidate, you can close some of your revolving accounts with high interest rates, has smaller credit limits or an annual fee. You should keep the “older” credit cards. A big part of your credit score looks at how old your credit history is, and closing a longer-term card account may affect your credit score. The longer your credit history with a lender or credit card company the better.
And here are a few ways to decide if a consolidation loan is right for you:
-Ideally, consumers can speak with a financial counselor. A Financial counselor can help the consumer.
-Determine if a consolidation loan will work for the consumer.
-Decide what accounts can be closed if required.
-Make a repayment plan, in case they don’t qualify for a consolidation loan.
-Help the consumer to maintain or improve their credit score.
-The first place to look for a financial counselor is where you have an established banking relationship. If they don’t have one available, you can check with your local credit union, the Hawaii Community Assets, The National Foundation for Consumer Credit, Hawaii Home Ownership Center, just to name a few.
For a consolidation loan first apply at the financial institution that they use for their daily banking needs.
Here, you have an established financial relationship.
If you’re not able to get the consolidation loan, try a community credit union or local bank.
Other types of loans to take into consideration, If you own property with equity, you may want to consider applying for a Home Equity Line of Credit (HELOC), especially if you’re consolidating a large amount because you can spread the payments over a longer time horizon.
Website: http://www.hawaiifcu.org
