Debt Consolidation: Financial Problem Solving that Works

When you’re beleagured by debts from high-interest credit card payments, revolving charge accounts or small, unsecured loans, there is a way to stop the collectors and start up the road to financial health.

A debt consolidation loan may very well be your answer. This loan will allow you to satisfy your existing creditors and end up with a single monthly loan payment with a lower interest rate.

The key is getting the debt consolidation loan approved by a lender the first time that you apply and this requires that you do your homework before you apply for the loan. Multiple applications to several lenders may appear on your credit file and suggest that you are attempting to get several loans without success possibly due to a low credit score.

The ideal way to secure a debt consolidation loan is to carefully prepare your facts and figures before you meet with a loan officer to make your application. Start by making a list of each debt you want to satisfy. Include the amount of the debt, interest, acquisition date and any late payments that you made. Simply stated provide complete and accurate information.

You will also want to prepare a monthly budget for the loan officer to review. This will demonstrate that you both understand your current financial situation and that you will be able to make the regular monthly payments on the consolidation loan.

The loan officer will undoubtedly ask you for certain documentation such as recent payroll stubs from your job and the previous years tax returns. These documents will tell the lender that you are employed and responsible and make it more likely that you will succeed.

There is one important statistic you will need to understand prior to meeting with the loan officer: Gross Debt Service Ratio (GDSR), which is the total amount of all your monthly debts divided by your monthly income in the form of a percentage. In the way of an example, suppose that your monthly income is $5,000 and your debt payments add up to $2500. This yields a gross GDSR of 50% that probably means you won’t be approved for the loan because lenders usually want a GDSR of 35% or less.

You can make this calculation much easier by going online and searching for one of the available debt consolidation loan calculators. These good little tools are often made available by lenders such as loan companies in the form of a free gift and can be used to calculate the payment amount on any sort of loan. Remember the importance of being prepared before you make that first application. Doing so will prevent negative information from appearing on your credit report and further lowering your credit score.