- How to Pay Off Multiple Loans
- Types of consolidation loans
- Differnt ways of consolidating debt
- What types of debt consolidation are there?
- Debt Consolidation Loan
- how to consolidate debt
For most people, sustaining a stable financial state for a long period of time is far from an easy task. It seems like life is getting more expensive with each year and for many people out there, it takes real effort to meet their monthly payments. As long as you have a stable job and are working hard, you are going to be ok.
However, that is a statement that is no longer valid nowadays. Many hardworking men and women struggle to pay their bills each month. But taking care of necessity bills like paying your electricity bill or buying food is not all that people have to deal with.
If you want to be successful and have a good career, in most cases you will need to finish your education. But going to college is not a cheap thing, and while there are many families who can support their kids all the way through their college graduation, there are many people who simply cannot afford it. Therefore, to finish your education, you will usually need to take out a student loan.
However, investing in yourself and paying your necessity bills is not all, as sometimes people face unexpected events that require immediate action. Emergencies usually catch you off-guard. Whether it is a health problem or your car breaks down on your way to work, you would want to deal with the situation quickly as it can only get worse with waiting.
With so many expenses, people are often unable to make it without a certain form of financial assistance. The loan lending industry has grown significantly in the past decade and so there are numerous loan options that borrowers can choose from.
However, taking out a loan is always a risky thing to do. The good news is that there is a way for people with multiple loans to regain their financial stability faster while making it more simple and less expensive at the same time.
People can do that by consolidating their loans. Below, we will take a look at what a debt consolidation is, how it works and how to consolidate your loans.
What is debt consolidation?
The most common way of consolidating your debt is with a debt consolidation loan. A debt consolidation loan is basically a larger loan that you borrow in order to pay all your smaller (and in most cases unsecured) loans. When you consolidate your loans, you basically accumulate all your debt into a single monthly payment.
That single monthly payment often has better terms like lower interest rate. With debt consolidation, you can handle much better many different types of loans, including payday loans, student loans, installment loans, credit card debt and others.
A debt consolidation loan is, however, not something that you should dive into blindly. You must do your part in reading all the conditions of your debt consolidation loan and be prepared to meet them. A bad debt consolidation loan can get you in a worse financial state than the one you were in prior to consolidation.
For most people, however, a debt consolidation loan has proven to be a key tool when dealing with multiple debts. As long as you do it the right way, it can be quite beneficial to your financial stability.
How does debt consolidation actually work?
There are various ways for multiple loans to be combined into a single, larger monthly bill. For instance, you can consolidate each of your credit card payments into a brand new credit card.
This will be a pretty good option if your new credit card has little charges or has no interest at all. The post popular approach to consolidating debt is to take out a debt consolidation loan. With debt consolidation loan, what happens is that you take out a new larger loan that is a combination of all your current debt.
What you get is a single monthly payment, usually with better loan terms than what your current debts have. You can get a debt consolidation loan from a traditional loan lending institution like a bank or you can get one from a debt consolidation company. In most cases, your debt consolidation loan will have lower interest rate and fees compared to all the debt you already have.
If you use a home equity loan, the interest rate on your debt consolidation loan will be even lower. With that being said, you should know that, with a home equity loan, in case you fail to repay your loan on time, you may end up losing your property. So do not go for that option unless you are completely confident in your ability to repay your loan on time.
How to consolidate debt?
There are many ways that you can consolidate your debt. Let’s have a look at some of the most common ones:
Credit card consolidation
This is maybe the most effective way to consolidate your debt if you can move all the credit card balance you currently have into a brand new credit card that has little to no interest rate at all.
Let’s say you open a new credit card that does not charge anything for the next 12 months and you have $4,000 of debt with a 25% interest rate. In such situation, moving your balance to a new credit card makes perfect sense. While in your grace period, make sure to pay off as much balance as you possibly can, so that you will have as much less balance to pay once the interest rate is back on.
A personal loan
If you have a friend or a family member who is ready to give you a hand and lend you some money, that can be your best option, especially if you do not have a good credit score. With this option, of course, you risk damaging an important relationship. However, as long as you are able to make your payments on time, it should be just fine.
It is best that you write down the specific terms of the loan you are taking from your friends or family, including consequences in case of a default or a late payment. Also calculate the interest rate you are going to have to pay. You can always use a debt consolidation calculator to make things a little easier.
Paying for your college education can be hard for both the parents and students. There are, however, somef rules that apply and benefit only this type of debt. Usually, federal student loans have an interest rate cap that does not allow them to become too expensive. Private student loans may be better for consolidation but do not forget that they may have a higher interest rate.
Life insurance policy
Borrowing on a life insurance policy is definitely not the most popular way of debt consolidation but if you are confronted with a choice between bankruptcy or a life insurance loan, you may want to choose the latter.
Usually, you can borrow up to the cash value of your loan and you can use that cash to consolidate debt. Your insurance company will not require any payments to be made as long as the amount of the loan does not surpass the cash value of the policy. But it may still be a good idea to make payments nevertheless. If you fail to repay your insurance loan, the death benefit is going to be used in order to cover the amount you have borrowed.
Debt consolidation loan
As we have already mentioned in the article above, the sole purpose of a debt consolidation loan is to combine all your debt into a single monthly payment. Such loans may be offered by traditional lending institutions such as banks or from certain debt consolidation companies.
If you decide to use a debt consolidation company for your debt consolidation loan, you have to be careful as sometimes these companies offer very high interest rates and you may end up with a loan that has worse terms than all the smaller loans you are trying to consolidate. However, such companies sometimes tend to offer debt consolidation loans to borrowers with bad credit scores.
While banks can surely offer you better loan terms, debt consolidation loans for bad credit is something that you simply cannot get from a bank.
If done correctly, debt consolidation may be your best way of dealing with multiple debts and regaining your financial stability.