Debt consolidation refers to obtaining a loan with low interest rate, to pay off other debts. It has two major advantages; instead of owing many debts at a time or paying several bills each month, a debtor has the privilege to manage a single loan. He can apply for a loan with a fixed and lower interest rate, rather than paying high interest liabilities.
Ways of Consolidation
One of the most effective ways is to refinance your original mortgage. It can be considered as the best way to avoid bankruptcy. With this refinancing option, you can pay off liabilities with higher interest rates.
If you have the possibility of borrowing money from your friends or relatives; by doing so, you can consider paying off the debts. Whatever may be the type of loan, save interest by paying higher than the monthly installment.
Home Equity Loans
Most of the debt consolidation loans are taken as home equity loans. For example, you can consider drawing them against the equity present in your current home, to pay off the other unsecured debts. This way, they are converted into secured ones.
The debtor also has the advantage of extending the duration for paying off the debts. The rate charged on them is comparatively lower than personal or credit card loans. However, if you fail to make the monthly payments, your property might be at risk.
Debt Consolidation Loans
Nowadays, they are offered by personal creditors. Calculate final figures of the current debts and interest charges, and compare them with consolidation loans. If the available products are advantageous, you can consider these loans and reduce the monthly repayments. You should always pay more than the monthly fixed amount, to be debt free in a few years.
It is a good way to consolidate debt, especially for those having a good credit rating. If your ranking is good, you can get a much lower interest rate than other options. You can talk to your creditors and ask them for a low and fixed rate credit card loan.
The issuer company may grant it, if you transfer other card balances to them. Make a deal for waiving off fees for their transfer. As such organizations do not require collateral, you are not risking your property by consolidating with credit cards.
Avoid taking loans of higher amounts than the total current liabilities; or it will worsen the financial condition, instead of paying off the debts. While choosing any consolidation, the debtor should research loans providing best deals. If you have any doubt about this topic, you can take the help of a financial adviser or other consolidation companies.
Disclaimer: This is for reference purposes only and does not directly recommend any specific financial course of action.