Debt consolidation is the act of combining all your existing debt in one easy to manage loan. By consolidating your loans, you’ll be saving a few dollars as the interest rate for the new loan is always lower. It also makes it easier to manage your finances as you only have only a single installment to take care of.

How Does It Work?

Debt management is a tedious task. It doesn’t matter whether you have a debt manager or not, but the truth of the matter is, the task can get you crazy. Imagine you have multiple loans, debts, and credit cards, each having a different interest rate, different due date and different monthly installment. Getting a mix up is not a wonder as this could be too much for you to handle.

Thanks to debt consolidation as it has made things easy! Combining all your debts makes your financial journey smooth and enjoyable.

Here are steps to follow in debt consolidation

Step1 – Gather information on your current debts

This should be the very first step when consolidating your loans. Prepare a list of all your current loans detailing the Original principal balance, current loan balance, payoff amount if different from the amount owed, interest rate, loan term, penalties (where applicable) and the name of the creditor.

Step2 – Research Lenders

Different lending institutions offer different loan packages with different terms. Have several lenders and compare their terms. Choose the lender with the most favorable terms. However, not all lenders are genuine, beware of loan sharks. If the deal is too good, think twice! Loan sharks will come with very enticing terms and take advantage of unsuspecting borrowers.

This is how you can differentiate between a licensed and unlicensed lender.

Physical Location – The law requires that all licensed money lenders have physical location where borrowers can go for a face-to-face verification

Advertisement – Licensed money lenders are not allowed to advertise by SMS, EMAIL, Phone or other social media platforms, rather, they should only advertise on customer directories, their website or at their business premises. Any other form of advertisement other than those mentioned should raise a red flag.

Contract Agreement – The law requires that a contract document be signed between the lender and the borrower. If a lender does not give a contract document for signing, or gives a blank paper for signing, then this should tell you that you are dealing with a loan shark.

Loan Terms – If you find loan terms that are too good to be true, then do your due diligence, rest you fall in the hands of loan sharks. Loan sharks will always look for something to entice the customer so that they can borrow with them.

Step3 – Prequalification

Have several lenders on your list and pre-qualify them based on the terms. Look for the lender with the most favorable interest rate and the tenure you feel comfortable with.

Step4 – Choose a Lender and Apply

Once you have prequalified the lenders, choose the one with the most favorable terms and apply your loan with them. For debt consolidation, you apply for a single loan that clears all the other loans.

Step5 – Receive Funds and Start Making Payments

Once you finalize on the documentations, you receive your money after the loan is approved and get your other loans cleared or you clear them yourself. Finally, you get your monthly installment and start paying a single loan.