Debt Consolidation

Debt Consolidation:

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How to Consolidate Debt

Finding a way to consolidate debt can mean obtaining financial security. Consolidation allows you to obtain new loans to pay off high interest rate debts. If used properly, it can be a lifeline. If abused, consolidation can make debt even more difficult to manage.

Steps

Obtain a New Credit Card Debt may be consolidated by obtaining a new line of credit and using it to pay off existing credit cards or other debts. Those with a good credit score are best suited for this option.

• The new credit card should have a large enough credit limit to allow you to consolidate all of your debt into one payment.
• Look for a credit card offering a lower interest rate than is currently being paid on existing debt to save money.
• Balance transfer introductory offers can save you money if you use them wisely and pay off the balance prior to the expiration of the introductory period.

Establish a Home Equity Loan or Line of Credit A home equity loan is one of the least expensive ways to consolidate debt. This loan is secured to the value of the property which means you risk foreclosure if you fail to make a payment.

• Since a home equity loan or line of credit is a secured loan, the interest rate is often significantly lower than unsecured credit card debt.
• You must have enough equity, or unmortgaged value, in the property to obtain a home equity loan.
• Most mortgage lenders offer home equity loans to qualified individuals. You must have enough income, be employed and have an adequate credit rating to obtain them.

Try to Obtain a Personal Loan Commercial and private loans can help you consolidate debt. These are available through numerous commercial lenders, but family and friends may also be an option.

• Individuals with poor credit may be unable to obtain an unsecured, personal loan from a commercial lender.
• Sometimes, borrowing from family and friends can cause problems with relationships. Consider this option carefully prior to using it.
• Unsecured, commercial loans like this may have an interest rate similar to credit cards. Ensure obtaining this type of loan is beneficial financially. Look for a loan offering an interest rate lower than what is currently being paid.

Work through Consumer Credit Counseling Services Though not a loan, consumer credit counseling services allow individuals to pay all of their debts in one monthly payment. Nonprofit and for-profit services are available, and their goal is to help you consolidate credit into one payment by negotiating with your lenders on your behalf.

• Counselors work with lenders to reduce what is owed and to establish a payment plan that will pay off the debt as quickly as possible.
• Credit counseling may have a negative impact on your credit.
• Failure to stay on the consumer credit counseling program may lead to lenders demanding payment in full.
• Individuals who are unable to obtain a loan any other way will benefit the most from consumer credit counseling services.