How to Save Money with a Debt Consolidation Loan

19 Aug 2007 Tell a Friend

Consolidation loans are for people who are heavily burdened with debt in the form of high interest personal loans, credit card debt, school loan debt, etc. With a consolidation loan, all of these high interest debts are payed in full, so the only remaining payment to be made each month is the consolidation loan itself. Most often, consolidation loans carry a much smaller interest rate than other, more common types of debt. In addition to providing quick debt relief, a debt consolidation loan is able to save many borrowers a good deal of money. Following is a list of ways to save money with a debt consolidation loan. 

  • Select a debt consolidation loan that charges a low rate. Having a lower interest rate means you can save money off your monthly repayments on the debt consolidation loan since your interest payments will be much lower. To find a loan with a low interest rate, be sure to shop around with a bunch of different lenders until you find the one that's got the best rate for you.
  • Commit to a fixed term loan. This can save you money because it will not allow your interest rate to increase if the base rate does.
  • You can keep saving money with a consolidation loan if you get an unsecured consolidation loan because you will have to pay a lower debt consolidation rate.
  • Cancel lines of credit and credit cards while you are paying for your consolidation loan. This is a form of self-discipline because paying for your consolidation loan is like paying for your individual debts as well. If you cancel potential sources of debt, you reduce the pressure on yourself to pay for additional or future debts.
  • Consolidate your credit card debts first before your other debts because usually credit card debt carries a higher interest rate than other forms of debt.
  • You will find it easier to start saving money with a consolidation loan if your credit score is satisfactory. People with poor credit ratings or negative credit history will have a harder time securing a consolidation loan with cheaper payment terms, compared to someone with a positive credit rating.
  • If you have excess assets in your name, such as a second home, you can put this up as security for a secured form of a consolidation loan. This is very helpful for saving money with a consolidation loan because a secured consolidation loan will carry a lower interest rate than an unsecured consolidation loan.