Debt consolidation is a way to pay off debts by applying for a new loan that pays off all your debts and that you concentrate all your efforts on paying off one debt, instead of several at the same time. However, consolidating debts is not for everyone and we tell you why, pay off your debt by consolidating or with credit repair.

How to consolidate debts?

To consolidate a debt you have to follow the following steps:

• Find the financial institution that is willing to offer a debt consolidation loan, offered usually for credit cards debt.
• Of all the offers that banks make you, accept the one that best suits you and meets your payment capacity. Usually you can extend the term and reduce the rate, but remember that reducing the monthly payment will also increase the time you have to pay it off.
• Identify the expenses you can do without, so you can have the resources to pay your only debt.
• Make a budget to analyze your ability to pay. So you don’t have problems in your personal finances because of that one debt.

Types of debt consolidation

Use a balance transfer credit card, that is, the transfer of a debt to another institution that has a lower rate, so you will reduce the amount paid for interest or other fees.
Take out a personal loan to consolidate all your debts into a single one so you have greater control over your finances, knowing exactly how much you have to pay and on what dates. This is convenient when having different debts makes your financial life chaotic.

Requirements to consolidate debts

• Good credit history
• Proof of address and income
• Details of the bank account(s) you wish to transfer

Points to remember before consolidating a debt

• Consider whether it is possible to consolidate a debt from your credit card or account with the bank you wish to contract.
• Make sure to contract fixed rate loans, this way the amount to be paid will not increase.
• Do not forget to compare the interest rate you currently have with your card or loan and choose the most convenient credit.
• Do some research on the bank or company you are thinking of choosing.
  Some institutions make obtaining credit conditional on the purchase of insurance. The purpose of this is to protect themselves and not to cause problems to your family in case of non-payment due to some unfortunate event.

Benefits of consolidating debt

• Keep in mind that it is easier to have control of one debt than three or seven.
• Make sure that the interest rate is lower than those of your separate debts.
• Remember that by reducing your monthly payment, you will also increase the time it takes to pay off the debt.
• You will have the possibility of making a monthly budget to know your capacity to pay the debt.
• Negotiate directly with the institution that can offer you the debt.
• Maintaining a good credit history is key to accessing future loans on better terms.
• Remember, this is about being very realistic when you place on the scale your income, expenses and what you owe. Paying debts is not easy no matter what the reason for indebtedness was. It is never too late, approach a financial advisor and you will see that your financial situation is not as gray as you thought.

Are loans to consolidate debts good?

Yes, as long as you have control of your expenses and do not fall into debt. Because the new loan will be much larger and you must comply with paying it, otherwise you will have a snowball of debts that could lead you to bankruptcy. Remember that to consolidate debts it is important not to have arrears. If you already have more than 3 months and you do not have funds to continue paying, it is better to turn to a credit repair company, which helps you to pay off your debts without the need to ask for a loan.

Author Bio:

I am Nikesh Mehta, owner and writer of this site.

I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.