If you choose to consolidate debt, do you think you will be successful in solving your credit situation? There are several debt relief options that you can choose from. If you really want to get out of debt, you need to find out if this is the perfect solution to achieve debt freedom. You have a lot of options when it comes to debt relief. All of them are effective but you will find that there is a specific option that is perfect for your specific debt and financial situation.
Why consolidate your debts?
Some people would choose this debt solution because it helps them save money – especially if most of their debts have high interest rates. If you have a good credit score you will most likely be given a low interest on your loan. Borrowing credit card debt consolidation loans with a low-interest rate will help you save money.
There are people who opt to consolidate debt because they have multiple debt accounts. They find it hard to monitor all of the due dates and payments. If they get confused, there is a high chance that they will miss a payment and be penalized for it. By combining their debts into one, the debt payment will be easier and more convenient.
To find out if this is the right debt relief option for you, it is important for you to analyze your debt situation and current financial position. When you have chosen the right one, you will not only guarantee that you can afford your debt payments. You might even be able to save a lot of money in the long run – specifically when it comes to your interest payments.
Once you figure out if you should consolidate debt or not, it is time to get to know the different ways that you can implement it.
4 different options to consolidate debt
There are 4 different ways that you can consolidate all of your debts.
Opt for debt management
Debt management involves a credit counselor who will enlighten you about your options based on your specific debt and financial situation. Apart from giving your debt relief options, they will also give you basic financial management lessons. This will help you stay out of debt. Part of this program is a debt management plan wherein you will list all your credit accounts and how much you owe. You will come up with an amount that you can afford to pay for each. The credit counselor will then take the debt management plan and negotiate with creditors until they accept it. These debt professionals usually have a working relationship with credit and lending companies so this negotiation should come easily.
Once approved, you will give the total monthly debt payment to the credit counselor, who will, in turn, distribute the payments to your various creditors and lenders. While this is happening, your credit accounts will be frozen. You cannot use them until after you have completed the debt management plan.
The great thing about this option is that for a small fee, you have a credit counselor helping you get out of debt. You just have to give them the monthly payment. They will make sure it will get to the right creditor.
Borrow debt consolidation loans
If you do not want to work with a professional, you can always opt to borrow debt consolidation loans. According to statistics, more and more people are borrowing personal loans – from 16.9 million in Q4 of 2016 to 18.2 million in Q4 of 2017. Since a personal loan is an unsecured debt that can be used for just about anything, you can use it to consolidate debt. The only downside here is that you will be the one to pay off your various creditors and lenders. If you do not have enough self-control, you might end up using this for something else.
Of course, there is also a specific debt consolidation loan that you can borrow and it will be automatically sent to your creditors and lenders. If you have a high credit score, you can get a low-interest loan to pay off your multiple debts. This can help you save a lot of money on the overall amount of the debt. Not only that, if you shorten the payment period, you can save more.
Use a balance transfer card
This option is only okay if you can get a balance transfer card that offers 0% interest for at least 6 months. The idea is to transfer your high-interest credit card debts into this new card. You will be paying a balance transfer fee. But if you know how to utilize this debt consolidation option, you will still end up saving a lot of money.
When you get approved for the balance transfer, you need to make sure you can pay the whole debt. Do this before the 0% interest rate promo period expires. That is how you can save the most money out of this option to consolidate debt. At the very least, you should pay off a significant part of the debt. Once the 0% rate is over, the card will have a high-interest rate and that can make all your savings useless. So pay as much as you can.
You should also refrain from using this card for new purchases. Usually, the 0% rate is only for the balance transferred. The new purchases will have a high interest rate.
Tap into your home equity
If you have enough equity in your house, you might want to use that as well. According to reports, a lot of homeowners have tapped into their home equity because of the rising value of properties. The report revealed that homeowners used the money to renovate their homes to increase its value. But you should know that this can also be used to consolidate debt. What is great about this is that it is practically your money that you are using. Even if you will be paying interest, it will be very small since you are using your house as collateral.
Of course, you have to be careful with this. If you fail to pay it back, you can lose your home. That is not an option if you want to improve your financial position. Make sure that you have a solid debt repayment plan and even a backup plan in case something compromises your first plan.