Every debt consolidation option has unique advantages and disadvantages. Furthermore, not every option is available to everyone. It all depends on your situation.
This article will help you learn more about the options available to get a better idea of which choice is right for you.
When it comes to debt consolidation getting a debt consolidation loan seems like the obvious choice. This type of loan is given out by a bank, credit union, or finance company. The financial institution provides you with a loan that is large enough to pay off all your outstanding debts. In this way, your debts are then consolidated, i.e., brought together under one loan. Consequently, you only have one monthly payment to worry about, and you can often get a lower interest rate than what you were paying previously. Additionally, you will get your debt paid off within a set amount of time, and the fees charged for this service are generally pretty low.
When you take out a home equity loan, you’re borrowing the equity you’ve accrued on your house to pay off your outstanding debts. So, for example, if the bank believes your home is worth $300,000 and your mortgage is $250,000, this means you own $50,000 of your home. This is your equity. Essentially, you can take a loan out of up to $50,000. In general, the bank will extend you a second mortgage for this loan. As a result, you’ll have two mortgage payments to make.
This type of loan usually has very low interest rates and flexible payment arrangements. However, you may be charged a number of fees for the costs involved in creating a second mortgage. Additionally, banks don’t usually like to do small mortgages, so you might be required to take out a minimum loan of $10,000.
A line of credit or overdraft is pretty much the same thing. They both work by turning your bank card into a credit card that allows you to spend money you don’t have up to a predetermined limit. Also, like a credit card, you only have to make a minimum payment each month.
You can get either a secured or unsecured line of credit or overdraft. The one you go with will depend on your bank’s lending policy and your situation.
Lines of credit usually offer the lowest interest rates possible. Additionally, their minimum monthly payments provide great flexibility, and you can pay the loan off as slowly or as quickly as you want.
If you can’t obtain a debt consolidation loan, you might consider consolidating your credit card balances onto one low-interest rate card. However, if you do this, you will need to be aggressive about paying off this card by putting a set amount of money onto the balance each month rather than just the minimum balance. For instance, if the card’s minimum payment is $50 and you budget to pay off $500 each month, you’ll pay off the balance in a reasonable amount of time. However, it can be hard to qualify for a low-interest rate card. Sometimes credit card companies offer low-interest promotional rates, but these usually only last for a few months. Once the promotional rate ends, the normal interest rate could be very high, making it harder for you to pay down your debt.
If no other consolidation options work for you, you should consider a debt management program. This type of program consolidates all your debt payments into one monthly payment. You make this payment to a credit counseling organization, and they dispense the funds to your various creditors. However, there is a caveat to this. Your credits must agree to participate in this program. Therefore, your credit counselor will need to draw up a proposal that demonstrates that this is the best fit for your situation. In general, enrolling in this program will get your debt paid off within five years.
Debt consolidation involves bringing all your debt payments together and paying them using one payment. There are many advantages to this, but chief among them is it makes it easier to manage your debt. Instead of keeping track of multiple debts, payments, and payment deadlines, you only have to deal with one. Additionally, you only have to handle one interest rate. Hopefully, one of the consolidation options we’ve mentioned here will work for your situation and make it possible for you to handle your debt repayment in a reasonable amount of time.