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What is the best way to consolidate your debt?

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By: Joy Mali
on 11th May,2015

If you have mountains of debt and are looking for a way to get out from under it, one thing you might consider is consolidation.
What is the best way to consolidate your debt?

If you have mountains of debt and are looking for a way to get out from under it, one thing you might consider is consolidation. With a debt consolidation, you can merge things like credit cards, personal loans, car payments, and more into one low monthly payment. There are several different ways you might consolidate your debt. You may get a home equity loan, transfer credit card balances to one card, or even get a debt consolidation loan. Finding the best way to consolidate debt really depends upon your situation.

Transferring Balances on Your Credit Card

This is the best method for those who don’t have a huge amount of debt and mainly want to manage their credit cards better. All you have to do is transfer the balances of several cards to one card. One issue might be getting a single credit card with a limit large enough to absorb the balances from the other cards. You may have to apply for a new credit card to do this, but if you’re already under a lot of debt, you may not be approved. Before you try this method of consolidation, you should review your credit score to see if you have a chance of getting approved for a card with a larger credit limit.

Get a Debt Consolidation Loan

You can get these loans for large amounts and roll in a number of other types of debt, including auto loans and credit cards. However, there’s one major roadblock: if you’re already struggling with debt, chances are you may have missed a payment or two. Anything that affects your credit score is going to make it difficult to get a loan, even one that’s intended to help people get back on track financially. People who really need to consolidate credit debt may have the hardest time getting a loan. There are some lending institutions that will work with you to get a loan even if you have bad credit, but be aware that you may not get the best interest rate. You may also find a family member or friend willing to give you a large loan, but make certain you both agree to the terms in writing.

Take out a Home Equity Loan

If you own your home and have built up equity in it by making timely mortgage payments over the years, you can borrow against that equity and use the money to consolidate your debt. You will them pay back the equity loan over a specific period of time. A home equity loan typically has higher limit and a lower interest rate than consolidation loans or credit cards. The downside here is that if you default on this loan, the lender has the right to seize your home. Being in debt is bad, but having your house foreclosed on is even worse.

Deciding on the Best Consolidation Method for You

Before you can decide on the best consolidation method for you, you need to gather some information. If you know how to check your credit score, you should do so. With your credit score or credit report, you’ll have a good idea of the type of credit for which you qualify. You also need to have a list of all the debt you want to consolidate and how much you owe. Finally, you need to be committed to paying off your debt. Find something to motivate yourself. Maybe you want to buy a house but can’t make the payments until you get rid of your credit card debt. Perhaps you’ve had relationships end in the past due to your financial situation and want to become more stable before entering into another. Whatever the reason, make sure you have a goal and are dedicated to staying on track.

Debt consolidation can be the perfect way of getting your finances under control, but you have to be smart about it. Find the best method that fits your needs and your resources. Then stick to that payment plan while avoiding opening new lines of credit. If you do this, you’ll become debt free. If you don’t, you may end up right back where you started.

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