The process of debt consolidation refers to paying off multiple debts by placing them all under the umbrella of a single, larger debt. All of the smaller debts are paid off and closed and you only have to make one payment each month instead of several.
You will still owe the same amount of money, but the idea is to save money overall and pay less each month by having a lower interest rate on the new debt. Here are 3 ways to consolidate your debt that you may find helpful:
Unsecured Personal Loan
The first thought most people have when thinking of consolidation is simply getting a big unsecured loan to pay off all the other debts. An unsecured loan is a loan that is not associated with any asset you may have. It is just a straight up, direct personal loan. You can get unsecured loans from big banks and other commercial lenders.
If you choose this option, just make sure the interest rate on the new loan is lower than the debts you are clearing up. Also, make a point of sticking to your payment schedule so you don’t get yourself into more trouble in the future.
Another type of loan you can try for to consolidate your debts is called a secured loan. With this type of loan, you use an asset as collateral against the amount of the loan. Typically, it is an asset that has a high value such as a car or your house.
This kind of loan may have a lower interest rate than an unsecured loan, because lenders see them as a safer investment. It is very important that you pay secured loans on schedule because your asset can be sold to make up the difference if you default.
Cards and Credit Lines
Some credit cards have relatively high interest rates when compared to secured or unsecured loans, but if you’re eligible for a low interest version, it may be an effective way to consolidate your high interest debts. It may take a bit of searching to find just the right card, but they are out there.
You may also qualify for a line of credit from your financial institution. These will typically have low interest rates, sometimes the lowest you will find. If you’re considering consolidation multiple debts, take the time to speak with a financial expert who can point you in the right direction and help you find the solution that’s right for you.