When you have a lot of bad debt that you have been unable to service, it is crucial you seek help as quickly as possible. This is because you do not want to get further into debt as most debts come with huge late payment penalties and high interest rates. After seeking financial help, you may be advised to consolidate your debts. Some organizations can even provide the loan needed to consolidate your debts. However, it is important to note that you can consolidate debts on your own.
The process of debt consolidation entails taking out a loan to pay off all your debts. You simply add up all your bad debts and take out a larger, but cheaper, loan to pay off all your bad debts. One of the main benefits you will get is simplified payments as you only need to pay a single monthly payment as opposed to several payments that are due at different times. Secondly, you will save on interest and penalties that usually come with bad debt. Below are some simple steps to follow when consolidating your debts:
Step 1: Add Up Your Bad Debts
Not all debt is bad. Your home loan is not a bad debt as it comes with a low interest rate and long repayment period. However, credit card debts, payday loans and cash advances are bad debts as they come with shorter repayment periods and high rates of interest. In addition to that, they come with huge late payment penalties that can significantly inflate your outstanding debts. Once you have the outstanding balance, you can start searching for a suitable loan.
Step 2: Apply for a Cheap Loan
There are many lenders who can provide you with a cheap loan. You only need to shop around. There are loan brokers who can also help you find the cheapest loan on the market. Another great option is to take out a home loan. If you have built up a lot of equity in your home, you can borrow against that equity at convenient terms and conditions. When thinking of debt consolidation, the key is to look for the cheapest loan with a long repayment period.
Step 3: Settle Your Bad Debts
After applying for your loan and paying off your bad debts, there are three things you will need to do. First and foremost, you need to service the new loan according to the agreed terms and conditions. Secondly, you need to update your credit report. All the lenders on your bad credit list should be reminded to update the current status of these loans as this is crucial in boosting your credit rating. Lastly, you need to avoid bad debts.
Be sure to engage the services of a professional when you are in bad debt. This will ensure you get a suitable solution.