Dealing with massive debts each month can become overwhelming. But by means of debt consolidation, you can move all your outstanding balances into one loan or bill, and only worry about one debt payment each month. Several techniques can help consolidate your debt. Knowing your options will help you make an informed decision.
Credit Card Consolidation
If you are carrying balances on more than one credit card, combine all balances onto one card with a balance transfer. Balance transfer refers to applying for another credit card (preferably one with a lower interest rate), and then moving your balances from the old cards to the new credit card. A lower interest rate results in paying less interest on the debt and helps pay down the principal sooner. This option is best for people who hold multiple credit cards and want to simplify their debts for easy account management.
Personal Loan
Use personal property as collateral and apply for a low-rate personal loan. Take the funds issued by the bank or credit union, and use these funds to pay off debts. This method of consolidation works best if you hold varying types of debt and are looking to combine outstanding balances from credit cards, loans or medical bills into one loan. Collateral for personal debt consolidation loans can include a car title or other property that matches the loan amount in value. Rather than make multiple payments to creditors each month, make a single payment to pay off the personal loan.
Home Equity
Building equity in your property also provides a means of consolidating debt. Home equity loans can prove best for consolidation if you have adequate equity in your property and when you don't have other collateral to qualify for a personal loan. Speak with a mortgage lender and discuss pulling equity out of your home to consolidate your debt. Home equity loans are second mortgages that use your equity as collateral. You can borrower against this equity to acquire immediate cash, and then pay back the home equity loan in monthly installments. Know the risks. Home equity loans can result in home foreclosure if you default and stop paying the lender.
Debt Consolidation Companies
Not everyone's in the position to qualify for credit cards, personal loans or home equity loans. Having limited options doesn't mean you're unable to consolidate your bills. Consolidation with the help of a debt consolidation firm is best when you don't meet the criteria for other consolidation options. Rather than apply for a loan to pay off debts, consider working with a debt consolidation agency. Unlike banks, these companies do not write checks or issue funds to pay off your debts. Instead, they take your outstanding debts and consolidate them into one monthly bill. This simplifies your situation, because no longer will you mail several checks a month. Send one payment to the consolidation company, and it will distribute payments to your individual accounts.
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