Debt consolidation may be necessary when you realize that your debts, spending, interest and monthly payments are out of control. Instead of drowning in debt, finding ways to consolidate it so that you are paying one payment per month for all of your debts can help you feel more in control of your financial future. While you may have heard about debt consolidation companies, know that they are not your only option when it comes to debt consolidation. Different ideas exist to help you reign in your debt and start paying it down.
Credit Cards
A balance transfer occurs when you take a number of debts, whether they are credit cards, medical bills or store cards, and transferring them to a higher limit, lower percent interest rate credit card. This consolidates all of your bills into one type of creditor, so that you are lowering your monthly costs and paying less interest. Beware of the fine print though, warns BankRate.com; some cards may seem like they are low interest, but the interest rate increases after a set amount of months. Also, be wary of fees for transferring; zero percent transfer fees are available if you ask your bank about them.
Second Mortgages
Second mortgages are usually used for renovations or buying big ticket items, and usually have a negative connotation attached to them. But, using a second mortgage to pay off all of your debts to consolidate them can help to give you a more manageable monthly payment. They often have a rate that is comparable to home interest rates, which is a few points lower than most credit card interest rates. Financial website MortgageLoan.com notes that the interest from a second mortgage or home equity loan is tax deductible and can help you clean up your debts into one, more manageable monthly payment.
Debt Consolidators
Credit and debt consolidators often have a bad reputation, thanks to many shady debt consolidators that promise help but never deliver. Finding a reputable debt consolidation company can help you get back on the right track by consolidating your bills. The debt consolidation company basically purchases your debts, taking them over from your creditors. You then owe the money to them. Their money is made in the interest rates and fees to do so. Before you sign up with a debt consolidation company, read the fine print and check their company against the Better Business Bureau, to make sure that their company name is clean and that they have satisfied customers.
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