Last Updated on March 3, 2023
If you have decided to go for debt consolidation, chances are that you have reached a point in your debt cycle where you have too much debt to deal with.
Maybe you are still able to manage your payments on time, but you are probably finding it tough to handle too many debt accounts or high-interest rates.
Under these circumstances, individuals are not likely to make any progress in terms of their debt because more often than not, all they can afford is the minimum payment.
The term consolidation refers to combining a number of entities into a single, more effective form. This holds true for debts, too. However, the term debt consolidation covers many different types of solutions.
Mentioned below are some of your options, if you are looking for consolidation of all your debts.
This refers to credit counseling, and involves signing up for a Debt Management Plan or DMP. In this process, a credit counselor helps consolidate several bills of the creditors to one monthly payment by negotiating small concessions in the form of lower penalties, interest rates, etc.
The monthly payment is dispersed to several creditors by the counselor while offering additional options and tools for money management. If you opt for this alternative, be a hundred percent transparent to the counselor about your financial condition. It would be difficult or even impossible for the counselor to help if he or she doesn’t understand your financial state.
Also, please remember that only one out of three applicants qualifies for monthly payment reduction by consolidating their credit cards and other types of bills. However, it is undoubtedly an option worth trying because it offers several benefits.
- It will help you learn techniques of proper budgeting
- Covers a wide range of bills including medical bills, loans, household bills, credit card debts, etc.
- If managed properly, an individual can get rid of all debts in less than five years.
- It creates no significant impact on credit scores.
Consolidation with Loans
This refers to taking out a low interest, larger loan to pay off several smaller debts including credit card and other loans. This can be done through a secured loan, personal loan, or peer to peer lending. This method of debt consolidation is the right choice for individuals that are
- Still able to qualify for loans with a good interest rate.
- Not at all able to manage multiple loan accounts.
- Still up-to-date with regards to their loan accounts.
A big disadvantage of this strategy is that the lender may end up becoming delinquent. This will result in the accumulation of fees, damage to credit score, and probable loss of the low rate of interest.
Also, if you are looking to consolidate your credit card debt using funds received from a home equity line of credit or HELOC, you are actually jeopardizing your homeownership by trading an unsecured loan for a secured one.
This is another debt consolidation form where you can have your debt transferred to a larger limit credit card with a relatively lower interest rate from one or several smaller credit card balances with higher rates of interest. However, there are points to consider before opting for this option.
- The credit limit of the new card should be significantly higher than the combined debt amount you want to cover.
- Please be mindful of the fact that there will be balance transfer fees to pay.
- Try to make as much progress as possible within the allotted time because the introductory rate will not be available forever.
If you are down with debts and looking for options, you may contact the experts at National Debt Relief to discuss the best available options for you.