follow these 5 steps using a personal loan

1. Check your credit

A low credit score (300 to 629 on the FICO scale) will not disqualify you for all loans, but consumers with a good to excellent credit score (690 to 850 FICOs) will be more likely to obtain approval and get a low interest rate.

Ideally, the new consolidation loan would have a lower rate than the combined interest rate of your current debts. A lower rate reduces the overall cost of your debt and reduces the repayment period.

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If your credit score is not at a level that allows you to get a lower rate, take the time to strengthen it. Here's how:

• Catch up on late payments. Late payments are reported to credit reporting agencies 30 days late and can shave off 100 points or more of your credit score. If you are within 30 days, there is still time to submit your payments.
• Check for errors. Errors on your credit file, such as payments on bad debts or accounts improperly marked as closed, could affect your score. Check your credit reports for free once a year at AnnualCreditReport.com, and if you find any errors, dispute them.
• Pay off small debts. Debts due represent 30% of your credit score. See if you can pay off high interest credit cards before consolidating. This also improves your debt ratio, which can help you get a lower rate on the consolidation loan.

2. List your debts and payments

Now make a list of the debts you want to consolidate. This can include credit cards, store cards, payday loans and other high-rate debt. You will want the proceeds of your loan to cover the sum of your debts.

Add up the amount you pay each month for your debts and check in your budget the expense adjustments you would need to make to continue paying off your debts. The new loan should have a lower rate and a monthly payment that fits your budget. Get involved in a repayment plan taking into account your budget.

3. Compare lending options

Online lenders address borrowers with all credit ranges, although loans can be expensive for those with bad credit. Most allow you to pre-qualify so you can compare rates and custom terms without impacting your credit score.

Bank loans work best for those with good credit, and clients with an existing banking relationship may be eligible for a rate reduction.

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Credit unions are non-profit organizations that can offer lower rates to borrowers with bad credit. You must become a member to apply for a loan. Many loans in credit unions require a hard draw with your application, which can temporarily hurt your credit score.

Shop for lenders offering direct payment to creditors, simplifying the consolidation process. Once the loan is closed, the lender sends the proceeds of your loan to your creditors at no additional cost.

Other features to consider include: payments reported to credit reporting agencies (timely payments can help your credit score); flexible payment options; and financial education and support.

4. Apply for a loan

Lenders will request several documents to complete the loan process, including proof of identity, proof of address and income verification.

Be sure to read and understand the fine print of the loan before signing, including any additional fees, prepayment penalties and whether payments are reported to credit reporting agencies.

If you do not meet the lender's requirements, consider adding a well-credited co-signer to your application. This can help you get a loan that you would not be entitled to.

5. Close the loan and make payments

Once you have approved a loan, the process is almost complete.

If the lender offers a direct payment, it will distribute the proceeds of your loan between your creditors and repay your old debts. Check your accounts for a zero balance or call each creditor to make sure accounts are paid.

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If the lender does not pay your creditors, you will repay each debt with the money deposited in your bank account. Do it right now to avoid extra interest on your old debts and to eliminate the temptation to spend money on the loan for something else.

Finally, within approximately 30 days, make your first payment on your new consolidation loan.

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