Are you wondering how to consolidate debt? There are many options for taking this wise financial step. You basically have three strategies for you consolidating debt – a credit counseling program, a secured consolidation loan and a unsecured consolidation loan.
So, how do you consolidate debt using these methods? Let’s start with the credit counseling program. In this program, you work with a credit counseling agency to negotiate with your creditors to reduce interest rates and bring down credit balances. Basically, these agencies pay your creditors and you pay them a single payment that includes a service fee.
Let’s look into this option a little further. When you first meet with your counselor, you sit down together with all of your debts. The credit counselor creates a list and finds out exactly how much debt you have. Next, they work with your lender to reduce interest and develop a repayment plan. Last, the counselor gives you classes and advice on budgeting and staying out of debt for the long haul. This option does not depend on your credit score to work. It often hurts your credit score for a bit and then it recovers as you get out of debt.
Next on list of how to consolidate debt is the secured consolidation loan. This option does not apply to everyone. You have to own your own home. The lender uses positive equity in your property to secure the consolidation loan. The lender pays off your loan and you pay the lender a single payment that is often lower than your previous debts. Your credit needs to be in decent shape for this loan option.
The last option on our list of how to consolidate debt is the unsecured loan. This is very similar to the secured loan in structure, but it does not tap into the equity of your home. It uses a higher interest rate to consolidate your debts into a loan. The higher interest rate is effective because the lender is taking a bigger risk in lending you money without securing it with property. This is another option that is dependent on your credit score.
You’ll want to follow the advice of your financial counselor on to consolidate debt.