Do you
want to consolidate your debt? Here are your options to choose from. Which one
do you like the best?
If you have enough of your high-interest rates on credit cards and loans while
having difficulty in paying your debt each month, try solving your financial
problems with debt consolidation. It’s a fantastic system that allows you to
put together multiple debts into one monthly payment at a lower interest rate
to pay down your debt more quickly.
If you have a debt problem that you want to be paid off immediately, you
have several options in dealing with this problem. A debt consolidation loan, a
personal loan, a balance transfer on a credit card, a home equity loan, or
borrowing money from friends or family. Which one makes sense for you will
depend on the type of debt you have, how you ended up in debt, your credit
score, and your financial goals. It is a known fact that we have different
financial situations, so choose which one suits your needs.
Home equity loan or auto loan.
Debt consolidation works well with unsecured debt. Examples of this type of
debt are credit card balances, medical bills, and student loans that don’t have
any collaterals such as your house or car.
Let us make it clear, debt consolidation doesn’t lower the amount that you
owe, but it lowers your total payments by reducing your interest rate. Debt
consolidation is very useful for high-interest debt like credit cards. You
will want to pay off your credit card debt right away because of the high-interest
rates. It would be great if you can use that amount of money for something
else.
Secured loans tend to have lower interest rates than credit cards, but the
disadvantage is that you will lose your house or car if you can't make the
payments. Well, you don’t have kind of risk with credit card debt. An unsecured
loan doesn’t have any collateral. Unfortunately, unsecured loans can be harder
to acquire, especially if you have a bad credit score. In addition to that,
your interest rate will likely be higher.
The balance transfer of your credit cards.
How would you like to use a credit card to pay off your credit card debt?
This strategy could be done. This solution is very counter-intuitive and
practical. Most of us have encountered a credit card with a 0
percent introductory rate that lets you transfer balances from other
credit cards. That's an option if you're looking to consolidate your credit
card debt.
The disadvantage of this option is that the offers are temporary. If you
can't pay off most or all your debt by the time the introductory rate expires,
you'll be back to paying high-interest rates again. The amount of debt you
transfer also may be capped by your credit limit. The advantage of this option
is you could pay down your debt without paying any interest at a specified period.
Debt management plan from the professionals.
If you don’t feel comfortable in dealing with your debt problem, working
with a credit counseling company is a good option. You can leave your financial
worries to the pros. These organizations offer education on consumer credit, budgeting, and debt
management. In addition to that, the financial consultants can put you on a
debt management plan (DMP). With a DMP, a credit counselor negotiates with your
creditors to lower your interest rates and fees. Then you make one monthly
payment into an account held by the counseling agency, and the counselor pays
your creditors.
Receiving help from a financial specialist will not hurt your credit score.
They can help preserve your credit. Just know that your credit cards enrolled
in a DMP will get closed, but you can reopen accounts later.
A DMP is not a loan. The only problem with this plan is that you don’t have
enough flexibility in a credit counseling company's plan for you. Your
financial woes are expected to be resolved within five years. You should make
your payments on time. If you don’t, you could end up back where you started
with high-interest rates.
Personal loan or borrowing from friends and family.
If you want to get your debt paid off more quickly, you might consider
getting a personal loan from a lender or borrowing money from friends or
family. Your support system can assist you in dealing with your money problems.
Hey, this is what families are for. We are here for each other. We can help
each other out.
Your credit score and how quickly you need the money will determine which
option is more viable. If your credit score is below 680, it might be hard to
get a personal loan, says Christopher Viale, president, and CEO of Cambridge
Credit Counseling. Even if you are approved for a loan, the interest rate might
be like what you're paying on your credit cards.
Fortunately, a personal loan has one advantage. It's a term loan, and the
interest is not going to continue to compound as time goes by.
Dealing with money and family members could be so tricky. If you can’t get a
loan from a friend or family member, you might need to get a personal loan from
a financial institution that you can trust.
Where can we go from here?
Being in debt is a severe problem that you need to solve right away. It is a
good thing that you have several options that can help you deal with the
financial woes that you are facing. The debt consolidation plan is a service
that allows you to pay off your multiple debts at a lower interest rate. Just imagine
the peace of mind it would bring! It is important to remember that we should
have the discipline to live within our means. Don’t spend your money over
things that you don’t need. You have the option to leave your
financial problems to the professionals so that you can focus more on living your life to
the fullest.