Debt Consolidation Loans Information Blog

Yes, it is possible to get a student loan debt consolidation loan.

In the United States, federal student loans are guaranteed by the U.S. government. To consolidate a student loan that is guaranteed by the federal government, your loan is purchased by a loan consolidation company, or by the Department of Education. The interest rate will depend on market rates up to the end of May of each year, so they may change over time.

It is also possible for former students to get a student loan consolidation loan from a bank or other lender, provided you have good credit, and the ability to repay the loan.

If you have good credit, talk to different lenders to determine the best interest rate. If you already have the best interest rate, there is no need to consolidate. As with all debt consolidation loans, your goal should be to repay the loan as fast as possible.

A reverse mortgage is the opposite of a regular mortgage.  In a regular mortgage you borrow money and make payments to the bank each month.  In a reverse mortgage you borrow the money, and don’t make payments!

Sounds good?  There is a catch: Because you are not making any payments, the interest on your mortgage loan continues to increase.  By the time you sell your house and repay the mortgage, it is possible that the amount owing on the mortgage is equal to the value of the house.  For this reason reverse mortgages are only offered to seniors, on the theory that the time they will be living in their house is less than the time a younger person will stay in their home.

If you have debts, you could use a reverse mortgage for debt consolidation.  You take your high interest debts and repay them with a reverse mortgage.  This eliminates your high interest debt, but it also means that when you sell your house there may be no equity left over for your children.

Another option is to simply get a conventional mortgage for debt consolidation purposes.  You borrow the money, repay your other debts, and then simply make a mortgage payment each month.  By doing that your mortgage goes down each month, so you are not continually eroding the equity in your home.  Mortgage loan debt consolidation is a better alternative than a reverse mortgage if you have a monthly income, and can support the monthly payments.

Either way, before you get a reverse mortgage or a conventional mortgage, calculate the cost of each alternative so you know exactly what you will be paying; there should be no surprises with a mortgage of any kind.

There is no guarantee that you will qualify for a Debt Consolidation Loan. If you own a house with equity, you will probably qualify at your bank for a secured line of credit or second mortgage, or you can refinance your mortgage to consolidate your debts with a Mortgage Debt Consolidation. However, if you don’t own a house, or if your house has no equity, you may not qualify.

If you are rejected for a loan, here are the steps you should take:

1. Ask the bank why you were declined.  It may be that you are close to qualifying, so if you can reduce your debt or increase your income you may be able to re-apply again in six months or a year.
2. If your bank won’t give you a mortgage, consider talking to a mortgage broker.  They have access to many different lenders, so they may be able to get you a mortgage even when the bank says “no”.
3. Consider asking a friend or family member to co-sign for you.

WARNING: If a friend or family member agrees to co-sign for you, they are now fully responsible for your loan.  If you don’t make the payments, the bank can now pursue your co-signer for payment. You should only ask a friend or family member to co-sign on your behalf if you are absolutely certain that you can make all of the payments.  If you are afraid that you may at some point miss a payment, do not get a co-signer.WARNING: Each time you apply for a loan and are rejected, a note appears on your credit report showing that you were rejected.  Your credit score goes down each time you are rejected for a loan. If you are rejected, ask the bank why you were rejected.  If you can take action to qualify in the future (perhaps by increasing your income, or paying off some of your old debts) then wait until you have fixed the problems before applying again.  A series of rejections will make it even harder to borrow in the future.

The easiest type of debt consolidation loan to qualify for is a Secured Debt Consolidation Loan.

As the name implies, a secured loan is a loan secured by an asset.  For example, a car loan is a loan secured by a car.  If you don’t make your loan payments, the lender can repossess your car.

Another common type of secured loan is a mortgage, which of course is a loan secured by the value of your house or other property. Why do lenders like making secured loans?  Simple.  They know they can recover some or all of their money if you don’t pay.

In contrast, an unsecured loan has no security, so if you don’t pay there is no asset, like a car or a house, for the lender to seize.  It is the value of this security that makes it easier for the lender to lend to you, and to offer you a lower interest rate on your loan.

That’s why the interest rate on a house mortgage is lower than the interest rate on a credit card.  Here are some sample interest rates (which are presented for illustrative purposes only, since interest rates can change on a daily basis):

• House mortgage                6%
• Car loan                             8%
• Bad credit car loan            15%
• Bank credit card                18%
• Store credit card                25%
• Finance company loan       33%

What does this list illustrate?  Simply put, the best interest rate on a debt consolidation loan will be on a secured debt consolidation loan, such as a mortgage.
If you have equity in your house, you can borrow against that equity to consolidate your higher interest debts.

Information about Mortgages and Home Equity Loans
Mortgage Debt Consolidation
Home Equity Debt Consolidation
Refinance Debt Consolidation
Reverse Mortgage
Debt Consolidation Home Loan
Debt Consolidation Mortgage Refinance
Mortgage Loan Debt Consolidation
Debt Consolidation Mortgage

If you own a car with no loans against it, you may be able to pledge that car as security for a loan or line of credit with your bank.

If you are applying for a debt consolidation loan, here are six practical things you need to know to increase your chances of getting the loan.

• The best place to get a loan is usually the bank where you already bank.  They know you.  They know how much you earn, because you deposit your paycheque with them each week.  They want to loan you money, because that’s how they make money.
• If you know someone else who also banks at your bank, ask for a referral to a loan officer they know.  A referral may increase your chances of success.

• Be ready to explain why you want the loan.  In other words, what are you going to do with the money?  You should have an answer ready for that question.

• Be prepared to negotiate.  If the bank agrees to give you the debt consolidation loan, but they require you to cancel all but one of your credit cards once they are paid off, are you willing to do that?  (Here’s a bonus tip: yes, you should be willing to do that, because you want to prevent any increases in your debt).

• Read the fine print.   If they offer you a loan, be sure to understand how much you are required to pay.  What’s the interest rate?  How many years will it take to repay the loan?  Can you pay it off early?

• Discuss payment frequency.  If you get paid weekly, you should ask the bank to take the payments directly out of your bank account weekly.  A weekly payment is easier to manage on a weekly paycheque than a monthly payment, and you will pay the loan off faster if you pay weekly.

By being prepared you increase your chances of getting a debt consolidation loan.

There are three significant advantages of a debt consolidation loan. First, the interest rate charged by a financial institution for a personal loan is usually lower than the rate you would pay on a credit card. This means you will save on interest payments.

Second, once you get your debt consolidation loan, everyone you owe money to will promptly be paid in full. You have the chance to maintain a good credit rating if you act quickly.

Finally, you will only have to make a single monthly payment to your financial institution, instead of making several monthly payments to various creditors, which is easier to manage.

There are two significant disadvantages of a debt consolidation loan.

Although a debt consolidation loan may help you save on interest charges, you still have debt. For example, a credit card debt consolidation loan does not reduce the total amount you owe. If you are not careful, and you still have access to your accounts and credit cards, there is a chance that you will be tempted to use them, and that will increase your debt and make matters worse.

Second, banks may not be as flexible as credit cards and other higher interest rate lenders. If you run into further problems, financial institutions may be less understanding and may refuse to accept a late payment. Therefore if you get a debt consolidation loan, be sure you will be able to make all payments.

Tomorrow we will review the advantages of a debt consolidation loan.

You can apply for a debt consolidation loan at a bank or a finance company.

Be aware that many finance companies offer consolidation loans, but generally charge a higher interest rate compared to a mainstream financial institution.

You can also apply for an online debt consolidation loan over the internet.

Whether you get a debt consolidation loan over the internet, at a bank, or at a finance company, it is very important to carefully review the terms and conditions, such as the amortization period and the interest rate, so that you know exactly how much the loan will cost.

Before you apply for a debt consolidation loan, do two things.

First, prepare a monthly budget showing your monthly income and expenses.

Second, draw up a complete list of your current debts to determine the total amount of your outstanding debt. Be honest and don’t leave anything out. The loan officer will be reviewing your credit file, so honesty is the best policy.

Next, read all loan documents carefully. If the interest rate offered by your financial institution seems too high, don’t hesitate to shop around at other financial institutions to try to negotiate a better rate. However, your credit score will be reduced if you apply at numerous places in a short period of time, so do not apply at more than three different banks.

In most cases, once the loan has been granted, the bank will pay off the outstanding debts to your creditors. Your financial institution may close credit accounts you have with stores, businesses or credit card issuers to make sure that you don’t increase your debts while paying off the consolidation loan. Even if they don’t close your other accounts, cut up your credit cards to ensure that you don’t get into debt again.

It does not cost anything to apply for a debt consolidation loan. If a potential lender requests an up front fee, don’t apply for that loan.

Lenders make money by charging interest on the loan. If they also want to charge you application fees, you should not apply for the loan. If you pay to apply for a loan, it’s easy for the lender to decline your loan application, but then keep your application fee. Obviously that is not in your best interest.

When you apply for a debt consolidation loan, be sure to ask the lender about interest rates and all other fees that they will be charging.