What Kind of Debt Consolidation Loan Is the Best?

Consolidating your debt into one payment makes taking care of your finances easy; you just have to write out one check, everything is paid for and you frequently pay less in interest than you did before consolidation. However, debt consolidation isn't for everyone. For example, those who will be able to pay off their debts in less than six months will not benefit as much from debt consolidation as someone with say $30,000 in debt. Moreover, for those who would benefit from debt consolidation, there is a variety of different debt consolidation methods to choose from, each with its own pros and cons

For Homeowners

If you are a homeowner, you could use your home to secure a home equity loan or mortgage refinancing. While this method of debt consolidation does mean that you could lose your home if for whatever reason you cannot make the payments, if you have enough equity in your home to cover all your debts, this can be an easy way to consolidate your debts. As an added bonus, the interest rate you pay is much lower than any other method, so when you use your home to secure a home equity loan or mortgage refinancing, you can save considerably in interest. In addition, certain tax advantages to a secured loan could be an additional benefit.

If You Have No Assets

If you have no assets, a secured loan, like a home equity loan, will of course be out of the question. In this case, the best type of debt consolidation loan is a low-interest credit card, if you can get one with enough of a credit line to cover your debts. If not, and you need to consolidate your debt, it may be time to consider bankruptcy. Through a Chapter 7 bankruptcy, your debts could be discharged completely and you would be able to keep your personal belongings as well as small assets, like your household furniture, car or work-related tools.

Credit Counseling

If your bills have become completely unmanageable, and you are looking toward bankruptcy as a last resort, the best type of debt consolidation may be to turn toward a business that specializes in helping people with debt. Attending credit counseling can help you weigh whether debt consolidation is a possibility for you, or if it is even a good choice. There are many credit counseling agencies out there that can help you develop a plan to manage your debt better, whether that includes debt consolidation or not.

Debt Consolidation Agencies

Alternatively, you may want to talk to a debt consolidation agency. These work by having you pay them and then they distribute payments to your creditors. Furthermore, many negotiate your debt with your creditors to have the interest rate reduced, fees waived, or other such benefits. In turn, they charge you a monthly fee for these services. To find a legitimate debt consolidation agency, check with your state attorney general or the Better Business Bureau.