4 Strategies to Negotiate the Best Rate for Debt Consolidation Loans

The rate you get on debt consolidation loans will ultimately determine how effective the program is for you. If your rate is too high, you may end up paying more after consolidation than you would have if you had simply paid your debts off slowly. Try these strategies to ensure your rate is competitive and succeeds in delivering the debt reduction you are seeking.

#1 Reduce Debts First

If you go into consolidation without reducing a portion of your debt, the consolidation loan you take will have to be larger. It can seem challenging to pay down debt when you are under water with multiple loans. However, being proactive to do what you can before calling on assistance is worth it in eventual interest rate savings. Start by contacting your lenders independently to determine if they are willing to negotiate with you. Any lender that is willing to settle your debt in whole or in part prior to the debt going through consolidation is a potential source of savings to you. Even if you decide to wait until you have a consolidation agent to make the deal, you will be better educated about your options to know when a consolidation agent is offering a good deal.

#2 Seek Nonprofit Consolidation Companies

Nonprofit companies will still charge you a service fee in order to operate their business. This fee goes toward their operation, salaries and other items. However, since they cannot net a profit at the end of the year, the fees tend to be lower with nonprofit companies than with for profit companies. The Federal Trade Commission offers some insight into selecting the right consolidation or counseling service on its website. The FTC does recommend working with a nonprofit where possible.

#3 Use Collateral

You probably used collateral on one or more of your existing debts. For example, automobile loans, auto title loans, mortgages and home equity loans are all secured debts. Moving to a completely unsecured consolidation loan will not make sense, and it may not even be an option. Using appropriate collateral can reduce the risk of the loan. However, consolidation does offer you the chance to refinance your debt. Part of this refinance can be moving your collateral out of harm's way. Instead of using a high amount of collateral or all of your assets to secure your debt, elect one or two items to use to secure the loan. This will provide you with a lower interest rate without risking all of your belongings.

#4 Take More than One Loan

It may sound counterproductive to take more than one consolidation loan. The point is to get your debts in one place for easier management. However, if you have six large debts currently, even moving down to two can be effective. Your loans will each be much smaller than one large consolidation loan would be. This can allow you to make relatively higher monthly payments on each, reducing the overall cost of your loans over time.


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