How to Get an Unsecured Debt Consolidation Loan

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By Jennifer Claerr
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Get an Unsecured Debt Consolidation Loan

Unsecured debt consolidation loans can seem like the perfect solution to making lots of payments every month on high-interest debts to different creditors. However, there are many pitfalls to debt consolidation loans. Although paying all your debts in a single payment may be more convenient, that doesn't mean it will be less expensive. Personal loans, especially unsecured loans, typically have a higher interest rate than a secured loan such as a home equity loan. Fortunately, there are many things you can do to save money, time and effort when getting and paying off an unsecured debt consolidation loan.

Difficulty: Moderate

Instructions

Step 1

Determine how much unsecured debt you have on credit cards and in personal loans. Make a note on a piece of paper of what interest rates you're paying on each.
Step 2

Check with your local credit union for their personal loan rates. Credit unions often offer lower rates than banks can afford on unsecured loans for debt consolidation. Ask if there are any other fees, such as application fees or transfer fees associated with the loan.
Step 3

Check the personal loan interest rates at the bank where you have your checking and savings accounts. Since you are already a customer, they may offer you a lower interest rate than a bank you have no relationship with. As with the credit union, make sure you find out if there are any hidden fees associated with the bank's unsecured debt consolidation loan.
Step 4

Avoid the type of debt consolidation loan in which your new creditor pays your old creditors on your behalf. Many of these companies may fail to pay your old debts on time or at all, leaving you stuck with paying both your old debts and the new debt consolidation loan. This can also result in your being charged late payment fees and other penalties by your old creditors. Before you sign on the dotted line for any unsecured debt consolidation loan, make sure that your new creditor pays the money to you and you alone. Also, keep in mind that if you have a bad credit history due to defaults or late payments, the interest rate on the unsecured debt consolidation loan may be higher than if you had good credit.
Step 5

Compare the interest rates on your current credit cards and personal loans to the interest rates offered by the credit unions and banks you researched. Only take out an unsecured debt consolidation loan if the interest rate on the new loan is really lower than what you're already paying. If the interest rate is higher than what you're already paying, consider transferring the balances of your high-interest credit cards and personal loans to a low-interest credit card. Your bank may also allow you to borrow against your savings account or CD at a lower rate than an unsecured loan.
Step 6

Use the money from your unsecured debt consolidation loan to pay off all of your previous creditors in full. Make the monthly payments on your new unsecured debt consolidation loan on time every single month. While your bank or credit union will not charge you a hefty fee for being only one day late making a payment on a loan as they would if you were late with a credit card payment, making late payments could still adversely affect your credit score and interest rates.

Comments

rockymtngrma said

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on 8/17/2009 Excellent information, especially the tip to watch for hidden fees. Unfortunately, many people fail to read and understand what they are signing. Your article should help them avoid that pitfall.