Consolidating Your Loans

Consolidating your loans can help reduce your interest rates so you do not have to worry about as many out of pocket costs each month. This is often used to combine credit card payment onto one low-interest card but you can also consolidate student loans, mortgages or any other long term loan or a second mortgage you are currently paying on. You can also use this method to decrease your principal payment, though occasionally this results in you paying more in interest than you would have originally.

How to Get Started

One of the most important things to pay attention to when you are looking to consolidate your loans is finding a credible company to work with. If a company is not financially sound you may wind up paying extra fees that others would not charge you and wind up hurting your credit rating for signing over your finances to a company that cannot be trusted. Make sure you do background research on any company you are considering working with so you have a clear picture of what you are singing up for.

If you qualify for a loan from your bank, you can side step the consolidation process by using this line of credit to pay off your loans. Then you can focus on paying off your personal loan that has a much lower interest rate and skip having to pay all the extra interest that would have been added to your original loans by paying them off early. Be sure to check if bills such as your students loans can be paid off early as many have clauses that require you to pay the same amount of interest regardless of how quickly you finish your payments.

Those who have a 401k or other savings plan in place can borrow against this plan to pay off your other loans, but you will need to do this in such a way that it will not harm your credit. Give your account plenty of time to grow back so you are not stuck without the savings you worked so hard on when you reach the time in life when you would need to use it. Similarly, keep a close eye on the market because the value of your account is directly linked to the value of the economy as a whole. If the market suddenly shifts you may find yourself needing to make payments on this loan much sooner than you originally planned.

Similarly, homeowners can take out a home equity loan if they qualify. The interest on these loans is often tax deductible if your loan is less than the value of your property. Use this extra cash flow to pay off your other debts right away so you can focus on paying your mortgage bills on a consistent basis so your credit will remain high and you never have to worry about one of your most valuable assets losing its value.

If you are serious about consolidating your loans you should work with a trusted financial advisor that will be honest with you about what your options are and which are the safest to maintain your credit score and financial portfolio. They will also be able to recommend a consolidation company that is trustworthy and offers reasonable rates so you do not have to worry about accidently stumbling across an agency that is not credible. If you do not have an advisor that you work with regularly, there are representatives though your bank that can take on the job with ease.

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