Three Ways to Consolidate Your Debt and Pay It Off
If, for any reason, you’ve mounted many debts and find it tough to meet even the minimum payments each month, consider debt consolidation. The term debt consolidation refers to a process of combining many debts into a single debt with a lower interest rate.
The financial industry offers many ways to help a person get out of debt. According to Nerd Wallet, financial institutions offer three main ways to consolidate debt:
- Balance transfer credit cards
- Consolidation loan
- Non-profit consolidation and counseling.
Let’s consider each in more detail.
Balance Transfer Credit Card with 0% Interest
The term zero-interest rate balance transfer credit card refers to a credit card that lets you transfer the balances of your other credit cards to it. You cannot transfer other loans. These cards offer a temporary interest rate of 0% for six to 21 months. This solution requires no meetings or automatic payments, although you can set up an automatic payment.
Obtaining a zero-interest rate balance transfer credit card works best for those who’ve maintained their credit score and haven’t yet maxed out their credit. That’s because qualifying for this type of credit card requires a superb credit score. It also works best if you only have credit card debt, since you can’t transfer other types of debt to it.
A person’s self-control matters, too. You’ll save a lot of money on interest with this card, and to make this work, you must pay that money saved to the credit card company. Once the low interest rate expires, the card reverts to a normal interest rate. You’ll need to pay your balance down to nothing before that expiration, plus you’ll need to avoid using your other credit cards, so you don’t re-create the same problem.
Fixed-rate Debt Consolidation Loan
Although you could use any loan for debt consolidation, the financial industry created a specific type of loan for this purpose. A debt consolidation loan, like those offered by debt solution companies like Symple Lending, features a fixed interest rate. You submit a loan application for the full amount of your debts.
This type of debt consolidation lets you obtain the amount owed on credit cards, auto loans, home loans, and sometimes, student loans. Because the low interest rate adds little to your initial balance, you can quickly pay off the debt. These loans offer a loan term of one to seven years, so you’ll have to pay it off quickly.
This debt consolidation type works for individuals with a range of credit scores, although those with poor credit won’t qualify. Those with good credit or higher qualify for the lowest interest rates. You’ll also need self-control because the financial institution provides you with the loan monies directly. That means it’s up to you to pay each loan off immediately and not spend the money on anything else.
Non-profit Debt Consolidation
By now, those with bad credit or who recognize that they got into debt due to money management problems or shopping addiction, may feel frustrated. The financial industry does offer you a solution! Non-profit organizations like the National Foundation for Credit Counseling help with debt consolidation and provide counseling to help you identify the problem and work towards a solution.
Using one of these non-profits requires you to create a debt management plan with one of their counselors and cancel all your credit cards, according to Bankrate. You won’t be able to open new accounts while you undergo the program.
The non-profit contacts each of your creditors for you and lets them know you’ve entered the program. The credit card companies may agree to a lower balance than you currently owe and a lower interest rate. You make one payment each month to the non-profit via automatic debit from your bank account. The non-profit distributes your payments to each creditor. You can consolidate every type of loan except student loans.
Get Started Today Getting Out of Debt
Consider honestly how your financial situation got to the point that you need debt consolidation. Choose whether a zero-interest rate balance transfer card, a debt consolidation loan from an organization like Symple Lending, or a debt management plan through a non-profit would work best to address the problem. You can eradicate your debt and improve your finances.