Debt consolidation loan?  How do I qualify for one?  Don’t I have to own my own home?  How will it affect my credit?  Those are all very good questions and are common for someone considering a way to consolidate their debt.  In today’s economy, there are more people struggling with debt then you would image.  The fight to keep debt under control and to stay on top of it can become overwhelming and incredibly stressful.  In many cases debt consolidation can be a beneficial option to fall back on for those experiencing such aggravation.  Okay, lets take it one question at a time.  Lets start with the first one.

Debt consolidation loan? 

If you’re not familiar with the idea of a debt consolidation loan, to put it simply, it’s just a loan you take out to payoff the balance on several other loans you may have.  The main reasons for doing so are to lower your overall monthly debt payments and to reduce the interest on all of your outstanding loans.  For more information on debt consolidation follow these links:  Debt Consolidation or Consolidate Consolidation Debt.  In general, a debt consolidation loan should result in the following benefits:

• Relief from financial stress

• One monthly payment to keep track of, instead of several

•  A lower overall monthly payment on debt

• A scheduled payoff plan

•  An immediate stop to late fees, over limit fees and bill collector calls

How do I qualify for one?

Applying for a debt consolidation loan is the same as applying for any other kind of loan.  It’s a process that can take anywhere from two to four weeks.  Whether you’ll qualify for the loan depends on a few main factors:

•  How much money you owe (debt to income ratio)

• How much money you make (income to debt ratio)

•  Whether you have collateral (something of value to secure the loan)

• How credit worthy you’ve been in the past
  

The potential lender will use all these factors and more to assess and decide on how much they may be willing to loan you.  They also weigh the risk factor involved in making the loan.

Don’t I have to own my own home?   

No, you don’t need to own your own home to secure a debt consolidation loan.  If you do own a home you can apply for a secured loan.  The loan is secured by the equity you have built up in your home.  

Usually it’s easier to qualify for a loan, and you stand to get better loan terms when you can secure the loan with your home.  If you don’t own your own home, you can always apply for an unsecured debt consolidation loan.  They are a little harder to qualify for and the loan terms are usually not as good as a secured loan.   

How will it affect my credit?

A debt consolidation loan in some ways can actually help your credit.  Once you consolidate your other loans, they will be paid off.  Having a zero balance and showing that your loans have been paid in full looks really good on your credit record.  Your credit record will show that you owe one large amount on one account.  As you consistently pay down the debt over time, your credit record will look even better.  

Also, if you’ve been late making your payments in the past or have gone over your limit on several occasions, a debt consolidation loan will put an end to any future problems with those accounts.  Once they have a zero balance they can’t incur anymore on going marks against you.  Of course, those that you may have earned prior to consolidating your debt will remain.

A word of advice - if you decide to pursue a debt consolidation loan make sure you shop around for the best deal; also, make sure you understand the loan terms completely before accepting the loan.