Reasons to Get a Debt Consolidation Loan

There are several reasons that a debt consolidation loan can be a useful tool. This might keep your credit score at a good level, plus it will give you extra money to work with each month. Knowing your debt-to-income ration might help you decide. This is useful information for anyone to keep tabs on their spending versus their income. There are several ways to get a debt consolidation loan, which I will explain in detail.

What is a debt-to-income ratio? This is a ratio calculated by comparing your income to the total amount of your debt. This ratio can be very revealing, especially if you calculate the ratio every few months. You may not like the results of a lender doing this calculation because if the ratio is too high you are likely to get a higher interest rate or maybe even get turned down for the loan.

The ratio is the percentage of your debt to your income. For instance, if you have a 35% ratio that means 35% of you total gross income before taxes is used to pay your monthly debts. You can easily find numerous calculators on the internet to help you calculate your debt-to-income ratio.

There are some guidelines that lenders use when deciding whether you qualify for a loan. The average debt load for most people is 35% but if you can keep your ratio around 15% you are in excellent shape. If your debt is 43-49% you are probably having some difficulty meeting your obligations. If it is over 50% you may need some professional help to aggressively reduce your debt. This is a time when a debt consolidation loan is probably your best choice.

• The best debt consolidation move is to take out a home equity loan if you have enough equity in your home. The advantages are the interest rates are lower and the interest is tax deductible. Most fixed rate loans are for 15 years and require an origination fee that is usually about $75 to several hundred, plus there is the cost of an appraisal and title insurance.
• There is another option for home owners called a “cash-out” refinancing. This is actually refinancing your property for more than you owe. You have the same expenses, an appraisal fee, an origination fee and title insurance. Of course, the interest is tax deductible and the interest rates are currently low. You can finance for 15-30 years.
• It is possible to refinance your car if you don’t owe much on it. If the car needs replacing and you owe more than it is worth, that could be a problem.
• Another option is a personal loan. If you have fairly good credit you may qualify for an uninsured loan. Credit unions typically have lower interest rates than banks, but even then in this economy an unsecured loan will probably run about 11%. That is still less than the 20% you might be paying to credit card companies.
• You can try to negotiate better terms with your credit card company by just calling them on the phone. Many service people are authorized to make this decision.

A debt consolidation loan may be exactly what you are looking for so you will have more spending money and money to save left at the end of the month. It is a long term solution which will ease your month-to-month bills. It is far better to make a plan earlier while you can still salvage some of your credit and get your debt paid down to a manageable level. If you debt is over the 50% ratio, then the loan consolidation is probably your best solution. This will allow you to have extra money each month to save to perhaps save for new home or maybe go on vacation.

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