If you’re struggling with debt, especially unsecured debts, one option for getting them under control is called debt consolidation. It has been used successfully by many families to manage their debts when they owe too much to their creditors. The idea behind debt consolidation is simple. It involves using new debt to pay off older debts and, when done right, can actually help you get out of debt faster. However, debt consolidation is not the answer in all cases as it has its advantages and disadvantages.
When it makes sense
Debt consolidation can make sense when done right. It can help you get out of debt quicker, reduce the amount of interest you have to pay to your creditors and even improve your credit rating. However, it makes sense only when the interest rate on your new debt is lower than what you’ve been paying on your older debts. As an example of this, if you have credit cards with interest rates of 18%, 20% or even 22% and can transfer these debts to a new card with a rate of, say, 12%, then you would definitely improve your situation. Debt consolidation can also make sense if it can lower your monthly payments and if you’re not trading fixed-rate debts for variable-rate debt. This is because there is a risk involved with variable-rate debt, which is that it could start low but gradually move up over time to the point where you’re paying more each month than before.
Transfer your balances
There are several ways to consolidate debts. If you are struggling with credit card debts, you could transfer them to a 0% balance transfer card. Some of these cards require you to pay no interest for as long as 12 to 18 months. You could use this time to either pay off your balance or to at least pay it down as much as possible.
Get a bank loan
A second option for consolidating debts is to get a loan and pay them all off. If you owe more than $10,000, you will probably have to get a secured loan – or one were you put up some asset as collateral. If you fail to keep up with your payments, you would then lose the asset, which in most cases would be your house. However, you should have lower monthly payments with a debt consolidation loan and possibly much lower payments. Bank loans generally have lower interest rates than credit cards. If you have credit cards with interest rates of 18%, 20% or higher you should be able to swap them for a bank loan that has an 8% interest or better. Some borrowers have been able to reduce their monthly payments by several hundred dollars though one of these loans. However, they do come with a downside in that it will probably take you seven years or longer to pay back the loan.
Consumer credit counseling
A third way to consolidate your debts is through consumer credit counseling. There is probably a consumer credit counseling agency in your area. If not, you can easily find one online. The way this works is that you are assigned a credit counselor who will review your assets, income and debts and assist you in creating a plan to pay off your debt. Your counselor will contact your creditors and negotiate with them to accept your plan and to reduce your interest rates. If all of your creditors accept your plan – and this is a big if – you should be able to become debt-free in about five years.
The best answer
We think the best answer for consolidating debt is to use our professional debt consolidation providers. These companies are usually able to negotiate with creditors to reduce both your balances and interest rates to help you become debt free in 24 to 48 months. We are so sure they can help you become debt free in a reasonable amount of time that we offer a simple 100% satisfaction guarantee. Call our toll-free number today