Dealing with overwhelming debt can result in plenty of sleeplessness nights, and if you get behind on payments, creditors may call your house or send threatening letters. Debt consolidation is a tool used by many to manage their debts. Learn about various debt consolidation options, and then decide if consolidation is right for you.
Why Consolidate Debt?
Better debt management isn't the only reason to consolidate debt. Credit card debt often involves higher interest rates, which makes it harder to pay down balances. Debt consolidation refers to combining outstanding debts into one bill and, oftentimes, debtors can acquire an interest rate on the loan that's cheaper than their current rate. A lower interest rate can reduce payments, and bring down the balance on the principal quicker.
Home Equity Options
Owning a home opens the door to home equity loans and home equity lines of credits. Both mortgage options use a home's equity as collateral, and owners can acquire a lump sum from their lender or gain access to a line of credit. If approved, owners can use these funds to pay off their credit card bills and other loans, and then make payments to their home equity lender at a lower interest rate.
Credit Card Consolidation
Acquiring a new credit card with a higher limit and cheaper interest rate is another option for those looking to consolidate their debt. Balance transfer offers involve moving the balance from one or more credit cards to a single card. Some card companies offer 0 percent interest or low introductory rates to qualified applicants; and paying a lower rate speeds debt elimination because creditors apply all or most of an applicant's payment to the principal balance, and not the interest.
Working With Professionals
Debt consolidation agencies are also useful when combining debts into a single bill. These companies do not provide funds to pay off existing debts. Instead, they receive one payment from debtors each month, and they distribute these funds to each creditor to pay the amount due for the month. Debt consolidation often results in better interest rates as the company works with creditors and lenders to improve the terms of your agreement. Lower rates help reduce the payment due each month.
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