How to Get Low Interest Debt Consolidation Loans
An Affordable Way to Consolidate Personal Debts
Oct 25, 2009
A low interest debt consolidation loan is a way of putting unpaid credit card debt, medical bills, small loans and bills under one roof. Instead of making payments to different creditors, the consolidation of debt involves making just a single payment. This simplifies family finances, reduces the amount paid each month and helps to minimise the risk of incurring charges for late payment.
Low Interest Debt Consolidation Loans
Affordably consolidating debt can help to reduce the amount of disposable income that goes towards debt repayments, but it is unlikely to be possible for non homeowners with a poor credit history. This is because the cost of borrowing will be significantly higher due to the risk of future default. However, it may be possible to improve affordability through a Debt Management Plan or debt settlement program.
Credit Score Rating
A reliable repayment history is fundamental to getting approval for a low interest debt consolidation loan. Before applying, it is important to get hold of a copy of a free credit report for the major credit reference agencies (Experian, Equifax and TransUnion). The information held by each credit reference agency is completely unique so any corrections will need to be performed on an individual basis.
- Whilst any credit indiscretions can take seven years to drop off a credit report, making timely repayment now and in the future can improve a credit score rating within as little as six months. More serious transgressions, such as filing for chapter 7 bankruptcy, will take in excess of two years to recover from as multiple forms of credit will have been written-off. The effect of foreclosure won't be as severe because only the mortgage will have been affected by the action.
- It is important to check for inaccurate data a minimum of 6 months before applying for credit. A number of credit reports contain information that isn't correct. In order to get this corrected, it is necessary to correspond directly with the credit reference agency and not the creditor. The appropriate supporting data will need to be provided or the correction process will be slowed.
- Those hoping to consolidate personal debts should avoid using the full credit limit on charge cards. It is important to pay-off or transfer some of the balance several months before applying. Craig Watts, the consumer affairs manager for Fair Isaac Corp, said that: "After repairing errors, the fastest route to a better score is paying down balances on credit cards."
In order to successfully apply for a low interest debt consolidation loan, a good credit score rating is essential. Although the term of a loan can be extended, the higher rate of interest will mean that the consolidation of debt will prove overly expensive. An individual in this position should look closely at a Debt Management Plan or debt settlement program as both programs may prove more affordable.
Sources
Curry, Pat. (August 3, 2007). "Tips for boosting your credit score." The New York Daily News.
Tedeschi, Bob (2009, April). "Faulting Credit Firms on Fixing Errors." The New York Times.
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