With so many people facing overwhelming debt, it is no surprise that more and more consumers are turning to debt consolidation as a way to dig their way out of debt.
From debt consolidation loans to debt consolidation programs, there are several ways in which consumers can consolidation their debts.
Debt consolidation offers consumers with multiple debts a way to simplify their budget as well as lower their monthly payments.
Through debt consolidation, you can replace the need to keep track of multiple monthly payments, each with individual due dates, with one simple monthly payment. Additionally, debt consolidation often comes with lower interest rates than those found with credit cards, which helps to lower your total monthly payment as well as reduce the amount of interest you pay over the long term.
One popular way in which to consolidate debt is by tapping into the equity in your home with a home equity loan. Securing a home equity loan works much like other types of loans. You receive a lump sum and then make a fixed payment each month for a predetermined repayment period, typically around 15 years.
Home equity loans normally come with lower-than-normal interest rates, and the interest paid on such loans is tax deductible in most cases. When taking out a home equity loan, however, you do generally need to pay certain fees, such as closing costs.
Despite these benefits, home equity loans do come with a very significant risk. When you secure a home equity loan, you are using your home as collateral for the loan. If you fall behind on your payments or default on the loan, you are at risk of losing your home.
Another way you can consolidate your debt is by taking out an unsecured personal consolidation loan. A consolidation loan is similar to a home equity loan in that it can be used to combine your multiple debts into one easy-to-manage loan.
Debt consolidation loans typically offer lower-than-normal interest rates as well. And while the interest paid on a personal debt consolidation loan is not tax deductible, you are not at risk of losing your home should you fall behind on your loan payments.
Finally, a third way in which you can consolidate your debt is through a debt consolidation program. Unlike home equity loans or a personal debt consolidation loan, a debt consolidation program does not involve a new loan.
Instead, a debt consolidation program will work directly with your creditors to coordinate your multiple monthly payments. When working with a debt consolidation program, you only need to pay one monthly payment to the debt consolidation program. The program coordinators then disperse your payment to your various creditors.
Additionally, a debt consolidation program often is able to lower your interest payments by negotiating lower interest rates with your creditors.
It is important to note that debt consolidation programs are not free. You will need to pay a one-time initiation fee as well as a monthly maintenance fee. However, if the debt consolidation program is able to lower your interest rates, you should still be able to save money overall.