When you suffer from bad credit, a personal loan can be the fast track to a stable and secure future. But how much should you borrow? This is sometimes a tricky question. If you borrow too much, you risk not being able to make the monthly payments. But borrowing too little doesn't bring the needed relief. To help you find your magic number, here are a few steps to success.
1. List Interest Rates
In general, the higher the interest rate on an outstanding balance, the more it should be prioritized into a personal loan of lower interest. If you have bad credit, you may have plenty of high-interest loans and credit cards to focus on. Debts which carry a similar or lower interest rate as your new loan are often best paid off separately.
2. Prioritize Balances at Risk
Are any of your credit balances at risk of legal action? You may need to focus on consolidating these even if there are other, more costly debts. Garnishments, for instance, are likely to cost you much more each month than a consolidation loan.
3. Decide What to Close
If you can shift the balances on any credit cards or debts to a personal loan, would you keep the account open or close it? If the answer is the former, you may want to pay off the debt in its current form and consolidate other things. Why? Consolidation loans provide the most permanent relief when used to replace revolving debt which could be charged up again. Transfer them and close them.
4. Don't Overdo It
One of the most common temptations when getting a consolidation loan is to consolidate everything into one payment. In some cases, this can be useful since it simplifies the payoff process. But be cautious about creating a payment that's just too large for comfort. Leave some wiggle room in your regular budget. It's okay to occasionally stretch the budget, but don't set yourself up with no safety net.
5. Opt for a Shorter Term
While personal loans are offered for six, seven, or even ten years, try to limit the length of yours. This allows you to pay it off sooner and stay motivated as the balance goes down. You can always repeat your success with a new loan once you've paid off your first loan. And your improved credit will likely lead to a better deal the second time around.
Where to Learn More
Want more tips for success with your new consolidation loan? Meet with a loan provider in your state today. With their help, you'll secure the best loan possible and create a workable payment that gets you on the road to financial freedom.
For more information on bad credit loans, contact a professional near you.