Consumer credit can get out of hand if you hit unfortunate circumstances or are unable to control your spending. You may be interested in effective methods to simplify your debts and ultimately pay off the balances more quickly. Debt consolidation provides a means to combine your outstanding balances into one loan payment.
Use Credit Cards to Consolidate
There are different methods of debt consolidation, and if you're a credit cardholder, consider applying for a low-rate credit card and then transferring all your balances to the new card. This method works well if the interest rate on the new card is much lower than on your existing cards. Contact your present credit card company to inquire about balance transfer offers, or speak with a new lender. Complete the application, and if approved, start moving your balances to save money on interest payments each month. A lower interest rate equals decreased monthly minimums. Begin making higher monthly payments with the lower interest rate to pay off debt more quickly.
Home Equity Loan
Another method of consolidation is a home equity loan. This benefits property owners who have equity in their homes. By borrowing cash from your equity at a low interest rate, you can pay off your high-rate credit card balances and other loans, and then re-pay your home equity lender at a much lower rate. Plus, home equity loans often feature a fixed term, which means you can pay off the debt within a few short years. While beneficial, there are dangers in taking equity from your home to pay off credit card balances. Once credit cards are paid off, some consumers make the mistake of re-accumulating debt, ultimately doubling their debt. Plus, if you default on a home equity loan, there's the risk of losing your property to foreclosure.
Personal Loan
With collateral in-hand and a good credit score, you can walk into a bank or credit union and apply for a debt consolidation loan. Personal debt consolidation loans help individuals who don't own real estate, or those who don't want to pledge their home equity as collateral. Instead, they can use a vehicle title, electronics or other personal property of value to secure the debt consolidation loan.
Debt Consolidation Companies
A low credit score or lack of collateral can prevent the above options for consolidating consumer debt. Non-profit debt consolidation agencies can help in this regard because you're able to consolidate your debts and receive credit counseling with no credit check. Representatives who work for consolidation companies place a freeze on your credit accounts, and then contact creditors to work out a lower interest rate on your outstanding debts. You no longer work with your present creditors. The consolidation agency pools your debts into one bill, and you forward one payment to the company each month.
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