To qualify for debt consolidation, borrowers must be behind or late in making their different monthly payments to their creditors. Click the link to learn how to get back on track while lowering interest rates and increasing credit score.
Borrowers can merge all their debts, take out one loan, and pay all their creditors with one single check every month until they pay off all their debts. In this series, I talk about debt consolidation as a management tool helping borrowers pay off their debts faster in low fixed amounts and with low interest rates. Moreover, I discuss how borrowers who are behind in their payments can get back on track while lowering their interest rates and increasing their credit score.
The sad thing about bills is that they are due on different days of the month, are paid in different amounts, at different interest rates, and are spread across different terms.
Borrowers have three main options for debt consolidation. The first option is to take out a personal loan to pay off multiple debts. I suggest this option for credit cards and car loans because personal loans generally have lower interest rates than unsecured debts.
The second option is to transfer high-interest balances to a credit card with a lower rate. The way it works is to take funds they have on the credit cards with the highest interest rates and transfer them onto the one with the lowest interest rate. This option is more suitable for borrowers with good credit scores because they may qualify for a low-interest credit card. The third option suits homeowners with houses worth more than they owe. For example, they owe $100K on their house, which is worth $150K; therefore, the home equity is $50K. The borrower can borrow the $50K against the house to pay off their debts. However, they must repay their loans against their own house. This option is called consolidation through a home equity loan or line of credit.
Borrowers can complete either option through a debt relief or debt consolidation agency. They must meet certain fees and specific criteria before being approved for debt consolidation, one of which is late in their bills, causing them to default. Debt consolidation does not reduce or eliminate the debt, but the borrowers will obtain personal loans with low interest rates that they will use to pay off their debts with high interest rates.
Borrowers seeking to decrease or eliminate their debt would join a debt relief program or file for bankruptcy. Debt relief involves working with experienced negotiators who contact creditors to settle a debt for less than what is owed. Debt relief is also referred to as debt negotiation”, “debt settlement”, “debt resolution”, or “credit card modification.
Debt consolidation is a debt management tool helping borrowers to reduce interest rates and keep track of their payments while plausibly improving their credit scores and eliminating the pressure of multiple lenders. There are some debts that borrowers cannot consolidate. For example, borrowers cannot take a personal loan to pay off combined utility, rental, or mortgage bills.
In summary, debt consolidation combines multiple debts into one loan with a lower interest rate or more favorable repayment terms. It is an excellent solution for individuals struggling to meet their financial obligations as it helps them manage their debts more efficiently and reduce their financial stress. Borrowers can consolidate their debts by taking out a personal loan, transferring high-interest balances to a credit card with a lower rate, or using a home equity loan or a line of credit.
Bobb Rousseau, PhD