Consolidate High Interest Loans
Managing multiple high interest loans under tight deadlines feels like a juggling act. Falling behind risks destroyed credit, collections calls, and financial chaos. Consolidating debts into a single lower rate loan simplifies payments and saves money long-term. With proper planning, you can take control of runaway loan costs.
Calculate Your Full Debt Load
Start by creating a master list of all current outstanding loans including credit cards, payday loans, personal loans, and retail installment plans. For each one, write down remaining balances, minimum payments, interest rates and monthly deadlines.
This full inventory spotlights the burden of tracking different payment dates, varying interest rates reaching 20% or higher, and looming penalties if deadlines are missed. Seeing the big picture often provides the motivation to pursue consolidating.
Next, total the monthly minimum payments across all loans. Determine if this entire amount fits reasonably within your budget. If it already stretches your cash flow, consolidation provides relief. If you struggle currently making minimums, consolidation may require longer repayment terms.
Be realistic about why you hold so much high interest debt. Overspending? Emergency costs? Job loss? Consolidation helps restructure and lower costs but doesn’t address root over-borrowing behaviors.
How Consolidation Works
Consolidation combines multiple loan balances into one new loan at a lower interest rate. This allows you to pay off debts faster by owing money to just one lender versus many. Consolidation also gives a fresh start with improved credit terms.
First, pick a consolidation lender and apply for a loan matching your total payoff amount. Once approved, this lender pays off your existing loans and becomes the only creditor you owe. You make one monthly consolidated payment at the new lower interest rate.
This simplifies tracking only one payment date. More money directly pays down principal when not leaking to high interest. Managing just one lender relationship avoids delays resolving issues when loan servicing splits across multiple companies.
Watch out for lenders charging Origination fees upfront based on the consolidation amount. This immediately puts your payoff balance higher. Ensure the lower interest rate sufficiently offsets such fees long term.
Check Qualification Requirements
Lenders want assurance you can handle larger consolidated loans and will scrutinize qualifications closely. You still need a credit score typically over 620 but they equally weigh income and debts. Expect underwriting to be stricter than just approving another small loan.
Document steady verifiable income without gaps or recent declines. Lenders may average earnings across two years tax returns if self-employed. Explain any current unemployment or retirement plans to avoid appearing an unreliable source of repayment.
Account for all existing credit card and loan minimum payments as recurring monthly debts. If consolidating student loans, outline the Direct Loan program’s income-based repayment options available once combined.
Explain any collection accounts or judgements. Simply consolidating won’t erase serious delinquencies already hurting your credit rating. Instead demonstrate lessons learned to avoid repeating past mistakes.
Research Lender Reputation
Consolidation loans last multiple years so lender selection is critical. Beyond competitive interest rates, you want transparent fees and responsive customer service. Steer clear of lenders with shady practices.
Search the Better Business Bureau and Consumer Financial Protection Bureau complaints for any red flags like hidden fees, interest rate bait-and-switch tactics or refusal to work with borrowers struggling to make payments. Move on from lenders with unclear responses or patterns of abuse.
Look for long operating histories and reviews praising clear communication, online account access and helpful loan advisors. Apply initially with multiple lenders to compare offers. Leverage competitors’ rates and perks against each other for the best deal.
Local banks and credit unions offer consolidation loans through established branches though often at higher interest than online lenders. Weigh familiarity against costs when choosing providers.
Understand the Closing Process
Once you select a lender and agree to consolidation terms, allow 2-3 weeks for completing payoffs of the existing debts and processing the new loan. Expect regular status updates from your lender’s loan officer throughout this period. Ask questions if unclear on any point in the sequence.
Notify your former lenders of the forthcoming payoffs. They will send you final account statements detailing remaining balances and may request supporting details on the consolidation. Communicating early ensures smooth closings.
The consolidation lender distributes payoff funds electronically to your old creditors. Confirm all final balances match what you outlined during approval. Report any discrepancies before the lender files your accounts settled and closed.
Review your credit reports afterwards to validate existing loans display zero balances owed. Multiple payoffs posting properly strengthen your score by lowering utilization ratios.
Develop a Realistic Budget
Estimate the monthly payment on your new consolidated loan using online calculators. Then create a detailed budget allocating income towards the consolidated payment, remaining bills, housing costs, food, healthcare and savings goals.
If the new payment exceeds affordable amounts when factoring other essential costs, reassess conditions under which lower monthly payments make sense despite longer terms. Even an extra year consolidating high interest debt often yields big savings.
Get workplace benefits advisors and insurance/utility companies involved to lower healthcare, phone and energy bills. Seek cheaper bundled plans even if service levels drop a little. Every dollar saved means more directed toward paying off debt.
Discuss opportunities for overtime, holiday work, or side jobs with your employer. Treat this extra income as mandatory for putting toward repayment funds rather than wants like dining out or vacations.
Make Payments on Time
Missing payments not only incurs penalties but also jeopardizes your ideal consolidation plan. Set up automatic withdrawals from a checking account to guarantee on-time payments every month.
Review account balances regularly to ensure enough funds exist when the autopay processes. Shortfalls result in overdraft charges further setting back repayment. Adjust autopay dates if needed around your pay cycle.
Monitor ongoing charges for any questionable fees like processing or account maintenance costs. Report unauthorized or wrongly applied activities immediately before they inflate your balance. Don’t wait for next month’s statement.
If money gets extremely tight due to an emergency expense, proactively ask about options for temporary reduced payments or due date changes versus skipping and defaulting. Most lenders make reasonable accommodations for consistent borrowers communicating genuinely.
Pay Extra Toward Principal
Allocate any monetary windfalls like tax refunds or bonuses directly toward extra principal payments. This reduces your consolidation balance faster. Every dollar not diverted means more paid in future interest – like throwing away free money.
For large additional payments, instruct lenders in writing to apply the amounts toward principal reduction, not future months’ payments. Otherwise they may default to treating it as credit and delay when actual principal decreases.
Celebrate consolidation milestones like passing the halfway point on your payment term. Visualizing progress helps stay motivated to keep attacking principal aggressively. Chart how monthly interest charges steadily decline as the principal gets paid off.
Reward yourself when you eventually pay the consolidation loan off fully. The sense of accomplishment for finally defeating unruly high interest debt provides lasting motivation to then start saving and build wealth.
Monitor Your Credit Report
Check credit reports and scores monthly to ensure your consolidated loan and proper account closures register correctly. Accounts mistakenly left open with late payments severely damage scores.
You want the positive history of on-time consolidated payments and zero balances on past debts clearly reflected. Dispute any inaccuracies in writing with credit bureaus following their procedures. Don’t let wrong data sink progress.
As your high interest accounts get paid off through consolidation, credit card and loan companies may court you with new offers. Politely decline these to avoid racking up balances and spiraling back into debt. Learn to live within your means.
Expect your credit score to dip initially when opening the consolidated loan. But responsible management and reducing loan utilization will boost it over time. Be patient and let this program work long-term.
Adjust Behaviors For Good
Beyond just refinancing existing debts, change habits that led to the mess consolidation had to solve. Live below your means, build emergency savings, and wield credit cards only as transaction tools rather than debt lifelines.
Cut unnecessary expenses even in small ways and bank the savings. Making your favorite coffee drink at home rather than buying daily saves $100 per month. Accumulate these small cuts as principal paydown.
Start viewing wants versus needs through the lens of how they impact debt freedom. Splurging on that new smartphone means less paid toward loans. Separate wishes from wise priorities.
Challenge what truly provides lasting fulfillment. Possessions bought on credit fade. But the character gained by paying off debts through focused sacrifice builds values. Don’t seek band-aid relief in shopping but meaning through discipline.
Consolidating high interest loans simplifies unruly debt management into one monthly payment at a lower interest rate. But embracing life change beyond temporary refinancing enables you to permanently break debt dependence.
Let the consolidation journey teach positive lessons about wants versus needs, budgeting skills, delayed gratification, and perseverance that apply well beyond loans. Progress won’t be painless but very worthwhile.
The finish line represents more than a recalculated bottom line. It signifies revamped habits and values around money that prevent recurring debt. Consolidation loans work best when paired with life changes.