There’s a good chance you’ve heard the phrase “ debt consolidation ” thrown around time and time again. This is particularly true if you’re struggling financially and in need of help.
While you may have a basic idea of how this debt relief strategy works, it may not be enough to take full advantage.
Debt consolidation is nothing more than combining multiple debts – most commonly term loans and credit cards – into one monthly payment.
The benefits of consolidating debt include but are not limited to:
- Ability to more easily organize your debt
- Lower interest rate (thus saving you money)
- Lower monthly payment (also saving you money)
- Opportunity to quickly pay down your debt
- Getting Started With Debt Consolidation
Regardless of your financial situation and goals, you need to compare a variety of debt consolidation programs to ensure yourself of choosing the right one.
There are three basic ways to consolidate debt:
1. Balance Transfer Credit Card
With this, you’re taking all of your credit card debt and consolidating it onto one card.
Although most balance transfer credit cards charge a fee – typically three to five percent of the total amount transferred – you gain access to a variety of benefits:
0 percent interest introductory period, which usually lasts 12 to 24 months
Access to a lower APR once the introductory rate expires
More efficient management of credit card debt
With hundreds of balance transfer credit cards to choose from, there’s a good chance you’ll find one that suits your situation.
2. Personal Loan
If you qualify for a personal loan, you can use the funds to payoff a variety of debt.
For example, you could use a personal loan to payoff all your conventional credit card and store credit card balances.
With various terms to choose from, along with a fixed interest rate, you can end up with a monthly payment that suits your budget.
Note: no collateral is required to secure a personal loan.
3. Home Equity Loan
If you have equity in your home, you can use it to consolidate debt and pay for any other expenses that are bogging you down.
Just the same as a personal loan, you can choose from a variety of terms at a fixed interest rate.
A home equity loan is likely to have a lower interest rate than a personal loan as your property serves as collateral. Subsequently, if you default on the loan, the lender has the power to repossess your property.
Compare and Choose
Now that you understand how debt consolidation works and your options for moving forward, it’s time to compare the pros and cons of each method and make a final decision.
Once you’re finished with the debt consolidation process, you’ll find yourself feeling better about your finances and your ability to control what happens in the future.