Debt Consolidation Loans
Debt consolidation is not the sole answer to your debt problems and must be used with other debt management strategies discussed on this website.
When is Debt Consolidation a Good Idea?
Debt consolidation is using your credit to pay off multiple debts by transferring multiple monthly payments into a single payment. The goal with debt consolidation is to accelerate paying off your debt with a lower interest rate, thus saving you money and improving your credit rating.
For debt consolidation to work:
- The interest rate on your new debt must be lower than the debt you are consolidating.
- A lower interest rate will lower the amount of money you have to pay each month.
- Pay off the new debt as fast as possible.
- You do not take on additional debt until you pay off the new debt.
Keep in mind if you consolidate your debt, you may end up falling behind if you stick to your old habits. Many people will continue to spend or feel they have money to spend because they feel they have things under control with a lower payment. Debt consolidation makes no sense if you do not change your spending habits.
There are several options to consolidate your debts. They include:
- Getting a loan from the bank.
- Transferring the balance from a high interest credit card to a lower interest credit card.
- Borrow money from your whole life insurance policy.
- Borrow money against your home equity
- Borrow money from your retirement account
- Borrow money from friends/family