How to Consolidate Unsecured Debt

Consumers carrying too much unsecured debt may choose from a few options to find relief and pay down their unsecured debt. One such option is debt consolidation. Debt consolidation can be undertaken in different ways: rolling all unsecured debts from several accounts to one with a lower balance, taking out a debt consolidation loan or seeking the assistance of a debt consolidation service.

Instructions

1

Add up all your unsecured debt. Unsecured debt is debt that is accumulated by borrowing against creditworthiness without collateral. Student loans and credit cards are the best examples. List all your unsecured debt in order from smallest to largest and include the interest rate for each.

2

Consider your options. The best option for homeowners with equity is to apply for a home equity loan or line of credit that will amortize their unsecured debts. Another option for homeowners with equity is to option a cash-out refinancing. Check with your mortgage lender, bank or credit union to see whether either option is feasible.

Get a personal loan. Banks and credit unions offer personal loans to individuals with good credit. These loans often have a 10% interest rate, but that is typically 5 to 10% less than credit card interest rates.

Transfer higher-interest-rate balances to lower-interest-rate accounts. Just as with a personal loan, the interest rate may still be close to 10% (or more), but it will reduce the overall rates.

Lastly, consider using a debt consolidation service. These services negotiate with your creditors to reduce your interest rate for a fee you pay back in your monthly consolidation payment. However, consumers should note that this can be done by the account holder himself.

3

Roll all unsecured debt into your consolidation option. Once you have identified the most feasible consolidation option, transfer or pay off all your unsecured debt. If there is a remaining balance from the consolidation option, use it to jump-start paying back the debt.