If you want to eliminate or reduce your overall debt, debt consolidation can be an excellent way to streamline your finances. Debt consolidation helps you roll multiple debts into a new loan with a single monthly payment. This can be a great alternative to juggling a number of their debts with their respective payments. But, debt consolidation is not always the right option. To know whether it will work for you, here’s what you need to know.
How Does Debt Consolidation Work?
Keeping track of multiple loans and credit card payments month after month can no doubt be overwhelming. Debt consolidation makes your repayments easier by combining multiple debts into a single loan. You could get the funds to pay off your existing debts by applying for a balance transfer credit card or a debt consolidation loan. Since you are applying for a new credit card or loan, you will, of course, have to meet the eligibility requirements of the new lender. If you don’t qualify for a rate that’s lower than the average of your current interest rates combined, then it does not make sense to consolidate your debts.
But even if debt consolidation is the best solution for you, it’s necessary that you have a plan in place to repay the loan.
The Best Ways to Consolidate Debts
There are various ways to consolidate your debts. Here are some of the most popular ones:
Personal loan: Personal loans are a popular debt consolidation tool, given that they have a fixed rate of interest and long term, helping you repay your loan amount over a period of time. Personal loans are available from credit unions, banks, and online lenders, and you can borrow anywhere between $1,000 and $100,000.
Balance transfer card: A balance transfer helps you move high-interest credit card debts onto a card with a 0% introductory interest rate. A balance transfer card is a great choice if you can repay your debt during the interest-free period.
Home equity loan: If you own a home, you may be able to borrow against your equity in the home. Home equity loans are a good choice because they have a comparatively low rate since they are secured against your property.