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Your 3 easy ways of debt consolidation and their advantages

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By: Phil Bradford
on 10th Oct,2017

Compare the 3 methods of debt consolidation along with their advantages. Choose the one that's most convenient for you.
Your 3 easy ways of debt consolidation and their advantages

If you are in rough times now, you must be staring at high mountains of debt. You are finding it difficult to cope up with these huge amounts. Wherever you are laying your eyes on, you are seeing difficult terms like debt settlements, debt consolidation and surplus types of loan, that are confusing you to extreme.

Here we shall discuss debt consolidation in brief, giving out explanations on different types of debt consolidation so as to help you decide fast and correct, what type of consolidation suits you the best.

Let’s ask the question in general:

What is debt consolidation?

It is a method that helps you to manage your debts in a better way. Through this method, you can bring all your debts together and instead of multiple monthly payments, you make only one payment every month.

There are various ways to consolidate debt. Follow the patterns of each and every method minutely before picking up the right one.

If you can make a good payment record after opting a debt consolidation, you will have good credit score in future. A well planned debt consolidation will also help you save a lot of money.

You must keep in mind that debt consolidation is completely different from debt settlement.

In debt consolidation your total amount owed remains the same.

You do pay your debts overall, but you just change the course of payment.

The 3 major ways to consolidate debt

1 Taking out a loan:

This is one of the most convenient types of consolidation. You need to understand your debts thoroughly along with the interest rates. Now you will have to approach a bank or any other financial institution. Apply for a loan that will have its value equal to all your debts summed up. You then make your debts cleared from this loaned money, and start paying only for this loan on a monthly basis.

Types of loan:

There are 2 types of loan structure. One is a secured loan and the other an unsecured loan. Be smart to choose from these two.

Secured loans

These are covering a collateral, which includes any of your personal assets.

It can be your home, vehicle or jewelry. Interest rate is typically lower on these loans, but it is risky, as you will loose your asset if you can't pay back full.

Unsecured loans

These are personal loans that does not cover any of your personal assets as collaterals. These are also called signature loans. A bank or any financial institution will grant you this loan on certain criteria. A good credit score can help you obtain a loan at suitable terms and conditions.

Your existing debts should be low. The bank must have a good reason to trust your creditworthiness.

Advantages of this debt consolidation:

  • You need to manage only one loan and therefore, a single monthly payment
  • You will have ample time to pull yourself back for a good credit report
  • If you can maintain your payments accordingly, you will hit a good credit score over time.
  • Since you have only one amount to pay and that too at a relatively low interest rate, you will save more money than you could have previously.

2 Debt consolidation program: Here you need not to take out a loan.

This is helpful if you have huge debt amounts. In this type of debt consolidation, you repay debt with professional help.

You, as a first step, need to go for credit counseling. The company will take a look at your total economical status. They will talk with your creditors and negotiate the interest rates. The company will now set the amount of your monthly payments as per a budget plan appropriate for you.

The consolidation company will be the third party to whom you will be making your monthly payments. So what you now do is just make one single monthly payment to the consolidation company, which can bifurcate the amount to the respective creditors.

Advantages of this debt consolidation:

  • This method of consolidation helps you maintain a good budgeting strategy
  • You will be regular at maintaining payments that will help you achieve a good credit score
  • You pay consistently to your creditors without thinking much about them
  • No more harassing calls from creditors

3 Credit card balance transfer:

This method comes into action when you are only talking of credit cards or revolving credits. Here you need to open a credit account at a comparatively low or zero percent interest rate. You transfer your existing credit cards’ balance to this new card. But, make sure to repay the outstanding balance within the low introductory period, since it’s not offered for long.

Just make sure to take out a credit card with more credit limit. You don't want your debt-to-credit ratio fall down badly.

Advantages of this debt consolidation:

  • The method is useful when you have multiple credit card debts
  • All your other credit card debts get wiped out at one go
  • Your new card should have lower interest rates. The bank may also willingly charge less, ideally 0% for a certain period of time; so you save a lot of money as interest payment
  • You now will be having only one credit card to deal with

The basic tip for debt consolidation: From now on be consistent with your payments. Deal with your debts as per your monthly economical stats. You may try the debt snowball or the debt avalanche method to pay off your debts. If the debt amount is what matters to you, then try the snowball. If you are worried about interest rates, then follow the avalanche.

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