If you are struggling with debt, like millions of other people around the world, a debt consolidation loan could be a good option for you, but there are a few considerations to be aware of before you make a final decision and submit your application. In the Philippines, personal loans are frequently offered to those who have existing debt, providing they can prove they have the ability to make any repayments they owe comfortably. This option can drastically reduce the amount of money you are expected to pay out every month but unlike credit cards, it is unlikely that you will be able to clear the debt quickly if you happen to come in to a large lump sum of money. In this article, we discuss some of the things you will need to think about if you are considering a debt consolidation loan in the Philippines.
Check Your Current Annual Percentage Rates
Whether you have existing credit card debt, salary loans or personal loans, have a close look at how much interest you are paying each month. A debt consolidation loan should always offer you a lower rate of interest than you are currently paying, otherwise you will end up paying more over time meaning you won’t really see any benefit from doing this. Credit card statements generally include a breakdown of what you are paying each month, including interest, penalty charges and any other payments you are expected to make. If you are paying a relatively high interest rate on a number of credit cards and are unable to secure a lower rate balance transfer card in the short term, a debt consolidation loan could be for you. Most lenders in the Philippines offer this kind of option for their customers but you can expect the rate of interest you are offered to vary quite considerably, depending on factors such as age, income, credit history and length of time you have lived at your current address.
Assess Your Current Employment Situation
Having a regular, sustainable income is essential if you plan to borrow any kind of credit. Those without a job or any means of generating income will need to make this their first priority, before organising any kind of loan. Though some companies will agree to lend you funds, even if you are not working, in the vast majority of cases, the rate you will be offered will mean that this will be a costly exercise in the long run. If necessary, consider taking a second job or starting up a side business that you can do from home in your free time. The less you need to borrow, the easier life will be. Clearing debt can only really be done if you are willing to work towards earning a living wage and though borrowing can help to take off the pressure a little bit, ultimately, you need to make sure you have something coming in to your bank account each month if you want to avoid being refused credit completely.
Balance Transfer Credit Cards
For those with existing debt, transferring balances to lower rate cards can be a good alternative to debt consolidation loans, but there are a few considerations to keep in mind before you go down this route. You will need to ensure that you can definitely make the minimum repayments you have agreed to each month otherwise you will often lose the special promotional interest rate you were offered. Most balance transfer card providers offer 0% or very low rates to customers who can provide regular payments, but they also have a second, much higher interest rate that is triggered when people begin to miss instalments. In some cases, you will be given a couple of months grace, but this is not always the case and without proper management, this type of card can become just as expensive as those with a standard, higher interest rate.
Explore All of Your Options
Extending your overdraft, borrowing money from friends or family and selling all of your non-essential household items should all be things you consider before applying for a debt consolidation loan. Though the convenience of making just one monthly payment at a fixed rate can be a great thing for those who are struggling with their finances, it is important to remember that when you sign up for a debt consolidation loan, you are committing to an extended period of time where you will need to come up with a fairly substantial amount of money each month, no matter what your personal circumstances are. Generally speaking, this type of loan is best suited to people who have managed to secure regular employment and are fairly sure they won’t need to borrow large amounts of money during the course of the repayment plan.
Credit Ratings and Scores
Like salary loans, debt consolidation loans can affect your overall credit rating. This can recover quite quickly, providing you change your financial behaviour over time, but initially, an application for this type of loan sends a signal to lenders and loan providers that demonstrates you are a higher risk customer. This means you are unlikely to be able to enjoy using lower cost credit for the duration of time you are paying off your loan. If you have no other option, debt consolidation loans can be a way of making sure you stay on top of your credit, but it is important to be aware of the potential consequences of agreeing to a contract like this before you sign up to anything officially.
Summary
Debt consolidation loans in the Philippines are commonplace but we would recommend they are only to be used as a last resort. Like salary loans and high interest credit cards, they should be considered as something of a safety net, rather than an as a means of improving your financial situation longer term. Ultimately, increasing your income and managing any non-essential spending should be your main priority before you go down this route.