If you’re struggling with debt, consolidation services could provide you with not just immediate relief, but also a quicker path to recovery. Debt consolidation combines all your bills into a single debt, which you can then eliminate through a management program or settlement that offers better terms.
Debt consolidation comes in several forms that you can compare to choose the one that best matches your situation and preferences. Every choice has its ups and downs, but they can all be vital tools for getting out of debt if you implement them correctly. Below are the three most common types of debt consolidation.
1. Credit Card Balance Transfers
If your problem is with credit card debt, a balance transfer can be a cheap and effective consolidation option, especially if you have a decent credit score.
Balance transfers involve opening a new credit card and transferring the balance on your existing cards to it. Credit card companies tend to offer zero or low interest on balance transfers to attract new customers, and that means you can complete the transfer at a small fee, and then take advantage of the interest offers for the next several months. Ideally, you’ll want to transfer balances from the cards with high-interest rates onto one that has these offers.
Transferring balances can be a great short-term remedy, as long as you keep track of the promotions’ end dates, after which the interest rate will increase. Keep in mind, however, that frequent transfers and revolving credit can negatively impact your credit report.
2. Personal Consolidation Loans
Personal loans are unsecured loans that come with short terms and interest rates ranging from 5 to 40 percent, depending on the amount you borrow and your credit record. Compared to credit card balance transfers, personal loans are easier to qualify for, and you can also get a larger amount of money to clear your debts. Individuals with credit card debt and low credit scores often find it much easier to get credit consolidation loans than balance transfer deals.
Taking out a loan to pay your creditors will make it easier to manage your finances because you’ll only have one monthly payment to make. Although you won’t get the best terms and interest rates if you have bad credit, a personal consolidation loan can come in handy if you want to clear a pressing debt quickly.
3. Home Equity Financing
With a home equity loan or home equity line of credit (HELOC), you can tap into the equity you have in your home to pay off your other debts. The most significant advantage of this type of consolidation over the other two is that, because you’ll be staking your home as collateral, you’re likely to pay the least interest, and therefore reduce the cost of your debt significantly.
On the flipside, securing a loan with your home means putting your ownership status at risk, and you may lose it if you run into more financial problems and fail to make timely payments down the road. Nevertheless, it can be an excellent debt consolidation option if you have bad credit and you can’t afford the cost of a personal loan.
If you feel overwhelmed by creditors, consolidating them into a single, easily manageable debt can be the right step towards financial recovery. Just make sure you choose the method that suits you best and commit to it.