Debt consolidation is simply taking multiple unsecured debts and combining them into one monthly debt with one monthly installment. Debt consolidation helps reduce interest rates on your debts something that slows down the rate at which your loans build up and how fast you have to pay the debts.
Consolidating is only applicable to unsecured types of debts such as credit card debt and unsecured personal loans. The problem with debt consolidation is that it does not work for every situation or every other person with a debt. There are different ways you could consolidate your loans and one is use of debt consolidating companies.
When you opt for these companies, you need to be wary of their operations. They charge for the services and the fees and interest rates could stretch enormously particularly if you have poor to fair credit score, which is common with people who are struggling with debts.
In addition, debt consolidation companies could subject you to a longer repayment plan that could result to payment of more interest in the long run even when the interest rates are lower than you had before. You may also decide to consolidate your credit card debts with home equity line of credit.
A home equity loan or home equity line of credit- HELOC can offer lower interest rates compared to other loans. However, you need to be careful and therefore you should consider the difference between your mortgage and the credit card. This is so because your credit card is unsecured while the mortgage loan is secured.
If you do not pay your credit card bill then the lending institution will not automatically take any collateral. Another way you may consolidate loans is by making use of 0 percent credit card balance transfer. You can use this option to consolidate your credit card debts in one card but you also have to be careful. You should read the fine prints on the offers. You need to consider your ability to repay the loan within the shortest time possible.
However, if you will not be able to settle the debt in short period, it may also be costly to go for the 0 percent interest credit card. This is because when the introductory period is over, the APR shoots up and it is better you opt for the low balance transfer credit cards.
Recently, there has been a new way of consolidating loans and this is peer-to-peer lending option. There are peer-to-peer lending companies that can help you connect you with a person who can invest small amount of money. You can get consolidation loan at good rates than you may find anywhere.
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