The bad news is that debt consolidation is, by no means, an easy thing to do, but it’s certainly worth all the effort. The good news is that there is not only one method of consolidating debt, as there are multiple options you can choose from. As you might – or should – know, debt consolidation is a tricky process that’s not completely devoid of various pitfalls. What’s more, consolidating debt is not always a viable option.
In the following, we’ll introduce you to all the options you have as a person who cannot keep up the pace with the interest rates and invoices that come from multiple loans and we’ll also emphasise the threats each of these poses to your financial well-being.
Debt Consolidation with a Personal Loan
Personal loans are provided by both banks and credit unions and even by private lenders that can be found on the Internet. The best thing about personal loans is that they are often unsecured, which means that people don’t risk losing their houses or cars if they fail to repay them. Make no mistakes, though: lenders can and will sue bad payers or defaulters and they can easily put a lien on their assets.
Consolidating your debt with a personal loan is possible only if your debt isn’t in a staggering amount because personal loans are somewhat limited when it comes to the sums you’re allowed to borrow. Let’s suppose that you have a couple of credit cards and each of them carries some debt. If you take a personal loan, you can pay them off and then continue to make your repayments on the personal loan itself.
Pitfalls: One needs to have a good credit score in order to be given low interest rates. The lower your credit rating is, the higher the interest rate will be.
Debt Consolidation with the HELOC
Tapping into the equity in your house is a risky thing, but more and more people do it with every passing year. If you’ve got enough equity in your home, you can borrow money against it. The HELOC usually comes with extremely low interest rates and, depending on the value of your house, can be in an amount that’s more than sufficient for you to repay all the other existing debts. Plus, you get a tax deduction for the interest rate.
Pitfalls: Your house serves as collateral, so if you default on the HELOC, you can lose it. However, this fear will compel you to keep a good financial behaviour.
Debt Consolidation with a Balance Transfer
If you can get your hands on a credit card with 0% interest rate for 12 months, you should definitely go for the offer and then roll all the balance on your other credit cards unto this one. You can actually look for such a card yourself, in the sense that you don’t need to wait around for your bank to give it to you. Just open your search engine and look for 0% credit cards. You’re sure to find one in a record time.
Pitfalls: The interest rate on this type of card is 0% for a limited time, usually 1 year. After that time has elapsed, it will go back to a similar rate to the one you’re probably paying now.
Another disadvantage is that by transferring the balance you’re not getting rid of debt, but merely putting it somewhere else. This, of course, doesn’t apply to all cards, so make sure you do some research.
If you’re in the position in which you’re seriously considering debt consolidation, contact us today to speak to one of our friendly team members today!
Debt consolidation is annoying, sure, especially when you’re not sure that you’ll get a better deal. The advice of a team of professional credit counsellors, bankers and accounts is invaluable, so don’t try to do anything on your own, lest you end up in even more debt.