What Is Debt Consolidation & Should I Consolidate?

Debt consolidation is an easy solution to help you consolidate the amount of money and debt you owe and put you on a path to financial stability.

Having high credit debt can be a real stress on you and your family.  But there are ways for you to improve your financial health.  Debt of any kind can leave you feeling helpless  and it can be insurmountable if you don’t have a plan.  Don’t let your debt control your life.  Debt consolidation is an easy solution to help you consolidate the amount of money and debt you owe and put you on a path to financial stability. Debt consolidation is not magic.  But, debt consolidation give you great way to roll high-interest debts into a single, lower-interest payment. This reduces your total debt and reorganize it so you pay it off faster.  8 tips to improve your credit score.

How does debt consolidation work?

There are four primary ways to consolidate debt, all of which concentrate your debt payments into one monthly bill:

  • Get a 0% interest, balance-transfer credit card:
    • Transfer all your debts onto this card and pay the balance in full during the promotional period.
  • Get a fixed-rate debt consolidation loan:
    • Use the money from the loan to pay off your debt, then pay back the loan in installments.
  • Homeowners Get a Home Equity Loan: 
    • Interest rates on home equity loans are typically lower than those on credit cards.
  • Get a 401K Loan:
    • The loans are cheaper than credit cards; interest typically equals the prime rate plus one percentage point
    • Negative: It derails your retirement savings.

Borrow from A Family Member

If you have relatives who can afford to lend you money, borrowing cash from mom, dad, or other family members.  Borrowing from family is the cheapest way to start paying down your debt. Sometimes, you can pay them back without any interest.  There are other benefits, such as, you won’t have to get a bank approval which affects credit score.  When you borrow from family, you have more flexibility and few risks.

If you borrow from a family member, DO NOT take advantage of them.  Make sure to treat this “loan” like any other loan.  Make sure you make payments on time.  Be honest and upfront with the family member you’ve borrowed from.  Family help family, but family does not like being taken advantage of or used.

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Nonprofit Credit Counseling

Nonprofit credit counseling companies will gladly teach you the secret of achieving financial security.  With these counselors, you’ll are free access to beneficial resources to help you find the best relief solutions.

When you enter credit counseling sessions, prepare to discuss the leading cause of your debt troubles.  And prepare to discuss your financial goals. The details you provide create a results-oriented plan, which is used to cut your debt. Debt management programs are designed to help you wipe out the outstanding balance within three to five years.

A nonprofit credit counselor will also provide you with advice for correcting poor money-management habits. You’ll benefit from nonprofit credit counseling.   They do help you to get control of your debt and form new financial habits to stay debt free in the future.

What Is Debt Consolidation & Should I Consolidate?

Credit Card Balance Transfers or Consolidation Loan

If you’re struggling to reduce credit card debt, try consolidating it all in one place with a balance transfer credit card.  A balance transfer allows you to move high-interest debt onto a credit card.  Some of these transfers can happen with a much lower rate.  Some are as low as 0% for well over a year. Transferring a balance to one of these cards can save you hundreds or even thousands of dollars.   This savings you can apply toward getting out of debt sooner.

Most people consider this method when they want to simplify their repayment plans. Instead of keeping up with multiple cards carrying different amounts of debt, you’ll only have to manage one card.  Having one card will make it easier to mange climbing out of the red.

Nevertheless, it’s important to do thorough research before you make a final decision. Some balance transfer credit cards can end up being costlier.  Beware of initial transfer fees, annual fees, and any regular interest that can slow your progress.

Borrow Against Your Assets (Home Equity or 401K)

If you have other assets or investments, you can use your assets to stabilize your rocky financial situation. You can borrow against those assets and consolidate your debt.

It is best to borrow as a secured loan.  A secured loan may be the best choice if you have fair or bad credit. Lenders prefer to put a lien on property so they can recoup their money without a hassle. Because the loan is secured, you are able to get a large amount of money and a low interest rate.

Avoid making rash decisions with your debt.  Failure to make payments on a loan will inevitably result in you losing the asset that’s on the line. These are tangible and real assets you already own, so do not take this lightly.  But on the positive, if you honor your commitment and pay on time, you’ll run into no trouble.  And you basically took a loan from yourself.

Get Out of Debt:  Consolidate Your Debt and Work Towards Financial Health

Get rid of the burden of debt.  Debt consolidation is effective and widely recommended. Consolidating debt makes repayment easier and quicker, and it often helps relieve those burdens that come with debt.

With the help, you’ll gain the knowledge and the skills to better manage your financial responsibilities. As long as you have the means to make consistent payments, you’ll have success with debt consolidation.