Debt consolidation essentially involves taking out a loan or using a debt management program to merge multiple debts into a single debt that is more manageable. Debt consolidation may be a good option if you are carrying multiple high-interest debts that are becoming increasingly difficult to keep track of. If you are considering debt consolidation, here are some of the common options.
- Getting a personal loan: Personal loans help you borrow a substantial amount of money at a competitive interest rate and repay it gradually over the course of the loan term. A personal loan is a good idea if you are able to get it at an interest rate that is lower than what you currently pay on your debts.
- Tapping into your home equity: If you have built up sufficient equity in your home, you can consider borrowing against it. Since these loans are secured by collateral, which is your home, in this case, you are likely to be offered a very affordable interest rate.
- Signing up for a balance transfer credit card: You can also consider signing up for a balance transfer credit card that comes with a promotional 0% APR for a certain number of months. Of course, you should opt for this method of balance transfer only if you are able to clear your debt within the interest-free period.
- Opting for a debt management program: You can also consolidate your debts through a debt management program offered by a credit counseling agency. Credit counseling agencies will work with your creditors and help you clear your debt. You will likely be required to send the agency a monthly payment, which will then be distributed among various creditors as per the agreed-upon terms.
Should you opt for debt consolidation?
If making multiple payments every month is beginning to overwhelm you and you are paying high interests on your debts, debt consolidation will likely help you. That said, you should remember that debt consolidation does not settle the debt. The debt is simply restructured to make it easier for you to repay it. So, you should only consider debt consolidation if you are sure that you can change your spending habits and stick to the new repayment plan.