Understand the Life Cycle of Your Debt

Rather than just being a constant obstacle to cross or threat hanging over your head, debts go through a life cycle and have varying stages. Debt impacts different aspects of your financial health, as does applying for any debt consolidation loan.


In applying for a loan to escape your debt, your debt is at its peak. The interest is growing in relation to the principal in a way that you cannot control without help, so now you enter the process of getting an unsecured personal loan, that will help you salvage your credit and be able to still pay for the things you need like groceries and utilities while also working towards paying your debt. Here, you are shopping around for the best lenders and seeing who will take you on with your amount of debt, your credit score, and your income. This can feel like one of the most difficult parts of the process, but getting yourself out there and applying for the loan that you need is the first step that you have to take.


This part of the life cycle of debt is one of the parts with the most steps, but it is one of the most vital in ensuring that this debt does not consume your life, either. Think of this stage in the life cycle of debt almost as a continuation of the application wherein the lender is seeking more and more specific details about the borrower to see the willingness and ability of the borrower to pay back the loan. What this means for you is gathering lots and lots of paperwork: verifications of employment, credit scores, return of disclosure forms if available, review of the verification process, and then the actual copying and submitting of all of the applications and paperwork to the lender itself. If you do not feel comfortable embarking on this step alone, many lenders have phone support that you can contact.

As you start to do processing on your end of the loan, sometimes the lender will start a pre-underwriting process as well. As you fill out more and more of your paperwork, the lender will start the process of reviewing some of the submitted parts of your application and begin deciphering how much of a risk you are to the lender if you take out a loan.


Put simply, underwriting determines whether or not you are a risky investment for the lender to take out on. This means that you will have to eliminate the risks that you could pose as a borrower. Your application is reviewed multiple times and you are being examined for how well you obeyed the conditions and the qualifications that you meet. Now, you are playing the waiting game of sorts. You can see the light at the end of the tunnel, the loan, but you have to finish getting through the tunnel of underwriting first. Eventually, there will hopefully come approval for the loan and a commitment letter from a borrower to a lender so that all of these agreements will be put on paper in the case of any future disagreements.


This is the home stretch of the loan life cycle. This is where the terms of the loan are reviewed and agreed upon and some last minute paperwork is filled out by the lender and the borrower. Sometimes, this can involve such things as a post-funding audit to make sure that everyone from the lender to the borrower will help you make sure that everyone is complying to the government guidelines and that you are using the money in all of the proper ways.

The best part of closing the loan is that this is the point of the debt wherein the funds for the loan are properly given and the loan is legal in the eyes of the law. Once the loan has closed, it will appear on your credit report and start to affect your FICO score. It may take some time for the closed loan to finally show up, however it eventually will and your credit score may change depending on how well you are keeping up with paying back the loan.


This is the follow through of the loan. At this point, the lender is ensuring that you are paying the loan on the terms that you all agreed upon. Payments get recorded and put down and insurance gets paid. This is the part of the life cycle that would require the most work on your part, but this is also the part in the life cycle that would be the one in which your debt is most diminished when compared to the other parts of the life cycle. As long as you pay your loan payments on time, your debt will diminish and your credit will recover from whatever slump your debt may have put it in. Your debt is near the end of its life cycle, but your free life after paying off your debt is only just beginning.

This is the life cycle of debt, and in understanding these points in its life cycle, you can better understand how to make the most out of your debt and how to get the most out of your finances even when you are in debt. Debt consolidation loans, their life cycles, and the life cycles of the debts that they seek to consolidate can help leave you perhaps an even better master of your personal finances than you were when you went in.