What does it mean to consolidate my debt?
This is the process of using a loan to pay off other debts. Now, this may not sound like a very bright idea at first, but everything has its good and bad sides. Debt consolidation serves as a lifeguard between drowning in debt and swimming in it. Debt consolidation gathers all the user’s debt and allows him/her to pay one large amount rather than many amounts.
Why debt consolidation?
Many people have turned to debt consolidation when they have realised that they are out of options and bankruptcy is around the corner. While debt consolidation involves a lot of risks, it gives the user in debt chance to gather money to repay that loan that got them into trouble the first time.
How to consolidate your debt
So, by now you are already stressed out enough and do not need more on your plate. Here’s 4 methods to make this as easy as possible:
- Obtain a new credit card - always search for the lowest interest rates possible when applying for a credit card to consolidate your debt. Remember, the purpose of obtaining this credit card is to reduce your debt, rewards don’t matter as much as interest. Make sure your credit card is set on a fixed limit and lastly, pay attention to the fineprint.
- Choose to go to customer counselling - by paying a monthly fee to a counselor, you can try to solve your debt without getting a lon. This is seen as a form of debt consolidation because you pay to reduce your debt.
- Get a secured loan, offering property as collateral - see if you qualify for a secured loan by contacting a bank or a lender. Do not overlook private financial institutions as they sometimes offer the most affordable interest rates on loans.
- Apply for an unsecured loan - these loans are a bit harder to obtain as the credit background check is more strict than secured loans. They have higher interest rates but offer bigger amounts once the loan has been approved and longer repayment periods.
Who offers debt consolidation?
These days, there is more than one option for everything, including loans, and fortunately, for some there are debt consolidation providers.
Banks offer secured and unsecured (risking an asset as collateral to pay the loan) consolidation loans. The biggest perk of asking a bank to help you with your debt is that you know they know who they are talking to. Depending on which bank you choose to take out the consolidation loan, they usually have good references (and bad ones) which makes it easy for you to make a choice.
Unlike other consolidation loans, payday loans do not require a credit background check. Instead of paying off individual debts for you, payday lenders hand you the cash, and give you the freedom of settling your debts on your own. This allows a massive amount of privacy and with that comes a lot of responsibility. Before you choose to make use of payday lenders, make sure you are a self disciplined person and will not use the money to make other purchases.
Or, finance companies.These lenders do not accept deposits like other financial institutions. They will pay off your debt for you, and send you a bill at the end of the month. Specialized lenders will do a background credit check although they are not extremely strict. They are based on interest and will require their payment in full once your debt has been cleared.
Before consolidating your debt keep these factors in mind
There are a few thing that are necessary to keep in mind before opting for debt consolidation. Make sure the following points are part of your checklist when choosing to consolidate your debt:
- Make a list of your debt - make sure you know exactly what is causing you debt and how much it is on which loan each month. This will prevent the lender to talk you into unnecessary payments. It will also help you identify which debts are most important to consolidate.
- Will you be paying more or less at the end of the month - consolidating your debt does come at a price. However, it is not suppose to cost you more than the debt.
- Are you thinking ahead - by consolidating your debt you might be in debt longer than expected (which is not a bad thing, you are creating time to pay off your debts). Keep in mind future happenings when deciding to take out the loan, for example school fees. Plan three to five years ahead to avoid increasing debt.