Deciding on the best debt management methods can be difficult if you don’t have the right information. However, there are multiple ways to manage multiple monthly debts, and debt consolidation is one of the most popular. But really, what is the smartest way to consolidate debt?
What Is Debt Consolidation?
Debt consolidation is a strategy to better manage debt by combining multiple balances into a single loan with a lower interest rate. It allows you to rearrange your debt in a way that makes it easier to pay off. Consulting a company like Freedom Debt Relief for debt consolidation loans you’ll learn you’ll need to take into account factors such as the amount of credit card debt, your current financial situation, your credit score, the interest rate you’re paying now and the methods for which you might qualify.
A successful plan helps lower your monthly payment to an affordable amount and allows you to pay off your debt in three to five years. The primary benefit of a debt consolidation plan is the reduction of multiple credit card payments to just one payment each month.
How To Consolidate Debt?
Consolidation of debt requires thorough knowledge of the alternatives available to make sure you choose the most suitable option. The total amount of the debt remains the same since debt consolidation provides you a way to combine balances for easier debt payment. You can explore various options for consolidating debt with the help of a debt management company.
Balance transfer card:This consolidation alternative allows you to move the balancesof several cards to another, lower-interest credit card. It is a good option to pay off high-interest debt if you qualify for a promotional interest rate.
For instance, if you have $10,000 in credit card debt on a card with a 23.99% interest rate and you can transfer this debt to a zero-percent card with a 12-month introductory offer, you’ll save $2,400 over 12 months. This option is best for those with solid credit scores and the ability to pay off the transferred amount during the introductory period.
Debt management programs: You need to have enough steady income to handle your monthly expenses to qualify for debt management programs. This strategy provides an affordable payment plan at pre-negotiated lower interest rates.
Advantages include lower interest rates and learning debt management skills. Such a program also protects you from creditor collection actions and prevents you from becoming delinquent.
Debt consolidation loans:This strategy calls for taking out a personal loan to cover higher-interest unsecured debts such as credit cards. You can apply for one through an online lender, bank, or credit union.
Using this approach, you can get out of debt quicker and less expensively, since you have less interest to pay. If your credit doesn’t qualify you for better interest rates than what you’re now paying, you may need to explore your options.
Home equity loan: You’ll borrow against the equity in your home, which will serve as collateral while you’re paying off the loan. Because of the collateral, you can usually snag lower interest rates with high borrowing limits, assuming your credit score and financial history allow you to qualify.
The Bottom Line
What is the smartest way to consolidate debt? First off, consolidation could be a great option for you if you have a favorable credit score and can afford to pay off your debt during the loan term. Look at your financial situation, do your homework, and perhaps talk to experts to see which consolidation strategy is best for you. This is the best way to make a sound debt consolidation decision.