Debt Consolidation Definition
Debt consolidation means taking out a new loan to pay off several unsecured debts from credit cards, medical bills, personal loans, payday loans, etc. Debt Consolidation is like refinancing your mortgage – you take big loan and then pay off all your previous unsecured loans.
Why is debt consolidation important? Well, living with debt has ultimately become the American-way of life. Unfortunately, what many people do not understand is that living with debt normally comes with a rather hefty price tag. Individuals who owe more than what they can pay for are not only less healthy but also more stressed out and live an oppressed life.
How Does Debt Consolidation Work
How does debt consolidation work to pay off multiple loans? A Debt Consolidation Loan can be an effective way to manage your finances. With the help of debt consolidation loan you roll multiple debts into a single payment, ideally with a lower interest rate. If you are living deep in debt and looking for viable ways to consolidate your debts, then the following 7 ways to consolidate your debts will assist you in gaining your financial freedom, together with several other benefits.
How to Consolidate Your Debt?
Here are the 7 ways to consolidate your debts:
1. Set Time Sensitive Goals
Despite the fact that you may be facing an insurmountable amount of debt, chipping out small amounts of money consistently, will go a long way in ensuring that the debt weighs down eventually. Begin by first setting realistic figures and the respective dates that you hope to achieve these goals. This will ensure that you come up with workable goals, which are within your reach. This is one of the best ways to consolidate your debts.
2. Apply for a Loan
In case your credit standing is still in good shape, then you could apply for a personal loan, which you could use to consolidate your debt. Though personal loans do not have the most attractive interest rates, their terms are normally flexible and the amount of money that one can receive may go a long way in consolidating the debt to a more manageable amount. This is another good way to consolidate your debts.
3. Transfer the Debt to a Low-Interest Credit Card
Credit card consolidation is great way to get out of a bad credit situation. Many Americans own lots of credit cards, and would normally reach out to the ones which are more accessible in their wallets. Nonetheless, according to financial advisers, this is not a great way to keep tabs on your debts because different credit cards have different rates. To consolidate your debt, look for a card with a low-interest rate, one that you can place a bigger fraction of your debt and then commence to clear the debt at a much lower rate, that the one you were paying with – an easy way to consolidate your debts.
To lessen the burden, and pay off debt faster, many consumers consolidate all balances onto a single credit card. When you consolidate the cards your consolidating will have much lower credit utilization ratios, but your overall ratio will remain the same.
4. Apply for a Debt Consolidation Loan
Lending institutions including banks might be willing to sit down with the borrower and come up precise debt consolidation loan with terms that you may be willing to work with. By putting your debt in one place and then repaying the entire amount in a responsible manner, you will be able to save both money and time. This is an effective strategy to consolidate your debts.
5. Debt Consolidation Through Credit Counselling
Credit counseling is very beneficial to individuals who are late in repaying their debt. First, credit counseling will assist you in coming up with a workable savings plan and home budget. Moreover, the lending institution may be able to provide you with debt consolidation loans at affordable rates. You must try this to seek some credit counselling to consolidate your debts.
6. Ask for Assistance from a Family Member
In case you run out of official channels of consolidating your debts, then you should consider reaching out to a family member or a close friend. Nonetheless, you should always ensure that you can be able to reach out to the mutual terms of the agreement. These type of agreements could easily put one back on track without necessarily having to meet lots of credit rating criteria and stringent requirements. If one has the means to repay a loan from an individual they know, then the chances are that their terms will be less expensive than that of a debt consolidation agency or a bank.
7. Taking Peer-to-Peer Loan for Debt Consolidation
You can also consolidate your debts through Peer-to-Peer loans. Peer to peer lending sites such as Peerform.com, Lending Club, etc are providing assistance by providing this alternative way of providing loan to debtors. What is the peer-to-peer loan process? All the peer-to-peer lenders use letter grade scoring. Once your application is approved, some of the lenders use an auction approach, where potential lenders actually bid to fund your loan. In other lending sites, your application will be put on the site’s platform for lenders to evaluate and approve your loan.
The advantage of peer-to-peer funding is that when you apply for a loan from a bank or credit union it involves a lot of paperwork and lots of hurdles to go through, which is not the case here. However, there is one stringent rule – that you must allow the peer-to-peer site to automatically withdraw your monthly payments from your checking account. And if you fail to do so in any month, you will be hit with a strong penalty.
Let us know in comments sections what do you think is the best way to consolidate your debts.