Learn How to Consolidate Your Debt Today

Debt consolidation is exactly what its name implies – it’s grouping together some or all of your debt and consolidating it. When you consolidate your debt, you make one monthly payment to pay off your debt instead of making a payment to each creditor. There are several ways to consolidate your debt and several things to look out for before choosing the option that’s right for you.

One way to consolidate your debt is to take out a debt consolidation loan. Many financial institutions offer some sort of debt consolidation loan to help out if you are not able to make your monthly credit payments. When you apply for your debt consolidation loan, the bank may have you fill out who your creditors are and how much you owe to each of them.

Once your debt consolidation loan is approved, the bank will write checks to each of your creditors that you listed to pay off your debt. Then, you will make one payment each month to the bank to pay back the debt consolidation loan. However, you should be aware that many times interest rates on a debt consolidation loan are very high – even higher than those on your credit cards.

Another way to consolidate your debt is to take out a personal loan. A personal loan is unsecured meaning you don’t have to put up collateral – such as your home. If your credit is good enough, you can often get a personal loan with lower interest rate. By taking out a personal loan with a lower interest rate, you can pay off your credit cards or other debts that may be carrying a higher interest rate. Often times, banks do not regulate what you use the money for when you receive a personal loan. The goal of taking out a personal loan for debt consolidation is to make one low monthly payment to your bank rather than several high credit card payments.

If you own a home and have built equity in your home, you can also take out a home equity loan to consolidate your debt. Home equity loans are secured loans because your home is your collateral. But because you are taking out a loan on the equity you’ve built in your home, you can usually get a low interest rate. This is perfect for debt consolidation. Once you receive the money from your home equity loan, you can pay off creditors and then make one low monthly payment to your bank to pay back the home equity loan.

There are other ways to help lower your monthly payments or consolidate your debt. First, you can call your credit card companies and arrange better payment options or arrange lower interest rates.

If you have a card that has a lower interest rate, you may want to transfer another card balance that has a higher interest rate to your lower interest rate credit card. Many times credit card companies offer incentives to transfer balances. Ask your credit card company if you can receive a lower interest rate for transferring another card’s balance. But be sure to ask what the terms and conditions are. Often, the lower interest rate is for a limited time.

If you are considering debt consolidation, then you may want contact the National Foundation for Credit Counseling (NFCC) first. The NFCC is a non-profit organization that can help counsel you on your options for paying off your debt. They can help you determine if debt consolidation is best for your financial needs; and if it is, which debt consolidation option would work best.