Do you know what debt consolidation is and how it can help your financial situation? You may be struggling with lots of credit card balances and monthly payments. Aside from debt relief programs, you may also consolidate debt into a lump sum.
This consolidation loan will pay your creditors in total, so you can handle just one debt with a lower interest rate. Since you are given a longer payment period and smaller installments, you may be able to pay off your debt easier.
However, your loan payments may accumulate and become larger than the original total. Also, an extended payment duration will mean prolonged time in debt.
Nevertheless, this may help your finances, so it’s best to learn more. Know what you need to qualify for this program, how to apply for it, and what the different kinds are.
How to Consolidate Debt
To start lumping your payments into one, you must first know what debt consolidation is. We all face different financial issues, so there are various options such as debt relief programs available. In fact, there are numerous choices that are difficult to distinguish from each other. Nonetheless, determining the appropriate one could be the key to debt freedom.
If you have major personal, medical, or credit card loan burdens, you may choose between two popular debt management options. Namely, you may pick “debt consolidation” or “debt relief.” Both can guide you through your financial straits, but one may be more appropriate to your needs. To help you out, we have organized the most well-known debt consolidation and debt relief strategies.
You may choose from an assortment of consolidation methods. These are provided by various online and offline financial institutions. You may consult a private lender, a debt relief company, or a third-party debt settlement procedure.
When to Use a Balance Transfer Card for Debt Consolidation
An average household in the United States owes at least $15,654 from just personal credit cards. In response, credit card companies have provided a way how to consolidate debts into one in a “balance transfer card.” Like debt relief programs, debt consolidation helped you pay that total easier with lower monthly installments in a set period.
Though in the long run, balance transfer cards may saddle you with more debt. At first, they offer a 0% annual percentage rate lasting 12 months or more. If you have several high-interest debts, you may find this deal enticing.
However, starting credit card balance transfers may charge you 3%-5% of the initial balance. You must pay more to include additional credit card debt. For instance, transferring a total of $1,000 of unsecured debts will require $30 to $50 just to do so. You may be thinking your debt dwarfs this example, but imagine the fees for $10,000 or higher!
You must repay the loan within the promo period, or you may suffer a worse financial situation. You may end up carrying more debt than you had before the consolidation. After the duration, balance transfer cards provide rates similar to most credit cards. Worse, your charge will be subject to further modification after the introductory period.
Check if you qualify in two simple steps
- Step 1 –
- Step 2 –
When to Use a Debt Consolidation Loan
Among the options regarding how to consolidate debt like debt relief programs, transfer cards aren’t advisable. If you aren’t careful, you risk ending up in the same stressful financial situation or worse. This may facilitate repaying several loans with high-interest rates. However, you must be able to repay the consolidation before the promotional period expires.
Alternatively, consolidation mortgages are among the most popular loan management methods. In fact, personal loans are quite common, partly because it may be used for nearly anything. You may pay consolidated debts through a personal debt consolidation loan.
Through the use of a consolidation bank loan, you may pay smaller installments in a shorter duration. These have time frames that last 24 to 72 months, so you may become debt-free quicker. Moreover, these have fixed rates in the 10% to 32% range, unlike balance transfer cards. These depend on your credit history, debt-to-income ratio, and other factors.
Starting these loans may require paying 1% to 6% of the total loan, but some providers may waive it completely. However, some loan consolidation companies may charge a substantial origination fee.
Because there are many ways how to consolidate debt, you should compare them and find the best. Learn more about the choices available, such as debt relief programs. Check online loan suppliers, contact your creditors, or consult a credit unification company to find the best for debt consolidation.
When to Use a Cash-Out Refinance to Consolidate Debt
Homeowners may tap into a specific method for managing several high-interest credit card loans. If you can pay a new monthly mortgage installment, a cash-out refinance may be appropriate for you.
However, having a poor credit rating or a high debt-to-income ratio may disqualify you from favorable interest rates.
When to Use a Debt Relief Program
Debt negotiation or credit card resolution is for those struggling with $10,000 or more in personal, medical, or financial balances. Organizations like Financial Daily Updates provide these services.
Their debt settlement programs like Liberty Debt Relief aim to lessen the amount you owe. They negotiate with your creditors, so they may agree to reduce your debt. Unlike methods on how to consolidate debt, it reduces the loan’s principal. Consolidation gives you lower installments, but you still have the same total or higher.
Keep in mind that relief programs require ceasing payments until negotiations conclude. In response, creditors may frequently call and borrowers may damage their credit reports. Worse, some may employ legal action in order to get full repayment.
Fortunately, respectable debt settlement corporations may protect you. They offer third-party legal representation to defend you against legal action from lenders.
Are You Eligible for Debt Consolidation?
Debt consolidation, transfer cards, and cash-out refinancing limit the amount you may borrow. Worse, those with poor credit scores, low debt-to-income ratios, and bad FICO scores have limited choices.
You may take out a home equity loan, but you may only finance 97% against your home’s current value.
