Consolidation loans are effective tools in clearing debts. But consolidation is a process. You have to borrow money to pay off your outstanding debts. But, not all consolidation loans are equal. Here are tips on how to find the right consolidation loan and how you can use it to better manage your debts.

Know how much you owe

If you’re planning on paying every debt you have with this loan, then add up everything– your bills, your credit cards, your apartment, your unpaid loans. Debt consolidation will help you pay everything. Adding every debt you currently have will allow you to know exactly how much you need to pay to consolidate every current debt you have. List down every debt you have so it’d be easier for you to determine whether you left something out or forgot some. Be organized while calculating so you wouldn’t have any trouble explaining to your bank or lender the amount you have to pay.

One of the easiest ways to calculate your total debt is to get a copy of your free credit report from the three credit reporting agencies in the country. You can see all your updated borrowing activities, there, including your dormant accounts and unpaid bills. Each file also has a record of the card credit enquiries, which are reported by your potential creditors to the credit reporting company whenever you apply for a loan.

What are the debts that you want to consolidate?

If you’re planning on consolidating everything, fine. But if you’re planning to consolidate only a few of which you’re having a hard time repaying, look for the ones with the highest interests. They’re the ones that cause your debt to constantly rise. Calculate everything in advance and then tell your lender or bank as soon as possible so that everything could be repaid as soon as you get the loan you’re going to use.

Provide proper documentation for your proof of income

Some lenders need to make sure that you are capable of repaying the loan that you took. Take out documents- payrolls, cheques- that will help them determine whether you are capable of repaying the loan or not. Show them every document so that they don’t miss a single one. For verification, show them your credit report also so that they know your repayment history.

Most lenders check this so that they can determine whether or not the person who is applying is responsible enough to repay the loan they took every single month. When you know that you have a bad credit, tell your lender that you’re willing to change that- if you really are, not just for the sake of getting your loan approved. If not, tell them that you’re taking out a debt consolidation loan made for people with bad credit. There are loans like that that are just specially made for those who have a bad record. Not only will this let you get a loan but also improve your credit score, if you are able to pay on time.

Find a specialised lender

Finding a lender can be hard, especially if you’re a person with bad credit. The key is too look for lenders online so that you wouldn’t have to travel from lender to lender just to find one who specialises on people like you who are planning to improve their credit. When you do find a lender that is just that, tell them about the situation you’re in. Afterwards, show them documents, and let them take it from there.

Determine how much you are willing to pay each month

Grab your credit file as well as your latest bank and credit card statements. Make a detailed list of your living expenses-including the recurring expenses plus the amount spent on each of them. You don’t have to cut your overall spending by a huge percentage. Simply remove or cut down on at least two major expenses such as entertainment or perhaps a second car so you can cut your cash loose and add that extra money to your repayment each month.

It is also important to put your extra money into your emergency account so you won’t be tempted to get a new credit card or a new loan when unexpected expenses come up. It is recommended that you stash away art least 3-monyths worth of living expenses to cover your emergency bills. You could put it into an interest bearing savings fund to make sure that you can get it immediately during emergencies.

Remember that you may have to opt for a frugal lifestyle while consolidating your debts that means, whether or not you’re itching for a long vacation, or a big ticket item, you can’t just yield to it. By saving your money you are helping yourself make timely payments on your consolidation loans and at the same time save money for future use. Enquire with Debt Consolidation for more advice.