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There comes a time in most of our lives when we need a loan. Whether it’s to repair a leaky roof, rebuild our classic car’s engine, or pay off multiple high-interest credit cards, a loan can come in handy.  One kind of personal loan is one for debt consolidation. If you’re thinking of applying for one, here’s what to do first.

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Check Your Credit Score

There are things to do before you apply for a debt consolidation loan. Checking your credit score is a good place to start. You can still get a loan with an unfavorable score, but better scores get the juice. That is, FICO scores of between 300 and 629 may not disqualify you, but scores from 690 to 850 have better odds of gaining approval and with a lower interest rate than what you’re paying on current debt. Paying a lower APR drops the overall cost of your debt and abbreviates the repayment period.

If you don’t require the loan right away, spend time improving your credit score to get a lower-rate loan. You can do that by catching up on late payments, checking your report for errors, and repaying small debts. 

Make a List of Debts and Payments

List and add up the obligations you hope to consolidate so that you know what size loan to ask for. Next, calculate what goes out monthly debt-wise, and check your budget for any spending tweaks needed to be able to repay your debts. You want a budget plan that will accommodate loan repayment.

Size Up Loan Options 

You also want a credit card debt consolidation loan that’s right for you, so you need to compare loan options. Such loans are offered by online lenders, banks, and credit unions.

Online lenders make loans available to consumers with all manner of credit scores, although the better your score, the better your interest rate. Most online lenders allow you to pre-qualify, which doesn’t bruise your credit and gives you some idea of what you qualify for before you officially apply.

Personal loans from national banks are relatively harder to qualify for, but if you have a relationship with one, you should try there. If you have good credit, you may qualify for a rate discount.

Credit unions are member oriented, so they may not be as rigid as banks in terms of credit requirements. You must be a member to apply, however, and you might undergo a hard credit check.

You also want to seek out lenders that pay creditors directly, which streamlines the consolidation process. Look for other features that some lenders offer, including having payments reported to credit bureaus, financial education, and flexible repayment options.

Take the Leap

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When you’re set to apply, get your documents together. You’re going to need your ID, income verification, and proof of address.

Don’t let any excitement over being approved distract you from reading all the fine print in the contract, noting any extra fees or prepayment penalties. Find out whether the lender alerts the credit bureaus about your payments.

Close the Loan

If your lender makes direct payments, it will allocate your loan funds among your creditors. Be sure to check your accounts to make sure your debts were paid. You may have to contact each creditor to make sure accounts show zero balances.

If you’re in charge of paying your creditors yourself, do it right away to avoid adding more interest to your old obligations and to pre-empt any temptation to spend the cash on baubles or a bespoke suit. 

Now you know what to do before applying for a debt consolidation loan. Work the plan — and set your feet back on a better financial path.

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