If you have a lot of credit card debt or other types of debt such as medical debt, you may be considering consolidating it. While there are different ways of doing so, the best way to consolidate debt is to use a personal loan or a balance transfer.
The Best Way to Consolidate Debt Depending on Your Situation
Debt consolidation takes all of your debt, from multiple sources, and combines it into one payment. This makes paying off your debt easier as you’re not dealing with a bunch of different payments and payment dates each month.
Also, when you consolidate your debt you usually end up with a lower interest rate, so you save money on interest over the long-term as well.
There are two main ways to consolidate your debt. The best way to consolidate debt will depend on your personal situation.
1.Do a balance transfer – If your debt is all credit card debt, then you might want to consider doing a balance transfer. To do this, you will need to apply for a new credit card that offers a low or zero interest rate on balance transfers for an extended time period.
This will reduce the amount of interest you are paying immediately, and you will only have one payment each month.
You’ll want to find a card that offers at least a year to a year and a half at the lower interest rate. You’ll also need to be able to pay off your balance within that time frame for this to be a good way for you to consolidate your debts.
In addition, all of your debt will need to be credit card debt. If you have other types, you won’t be able to transfer it to a credit card through a balance transfer
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2. A personal loan – There are two types of personal loans, secured and unsecured. An example of a secured personal loan is your car loan. In other words, the loan is secured by something you own. An unsecured loan is not attached to any type of property.
Note: It’s important not to confuse a personal loan with a payday or car title loan. Payday and car title loans should always be avoided. They can have interest rates of 500 percent or more.
An unsecured personal loan, on the other hand, is approved based on your credit score and work history. Most have lower interest rates than credit cards as well.
Another advantage of personal loans is that you can use them for anything. That means you can use the money to pay off any type of debt you may have. It doesn’t have to be credit card debt.
PersonalLoans.com is a service that connects you to a network of lenders. They have loans from $1,000 all the way to $35,000. The whole process is done online and is pretty quick. Repayment periods are up to 6 years. Interest rates start at 6.99%.
What Comes After Debt Consolidation
Once you have consolidated your debts, it is really important that you don’t go out and start using your credit cards again. You need to have a plan on how you will deal with emergencies and other situations that come up without getting yourself back into debt.
Otherwise, you’ll end up in a worse situation than when you started out. That’s why an emergency fund of three to six months is so important. It will allow you to take care of situations without pulling out a credit card.
As long as it is used properly debt consolidation is a great tool to help you get out of debt. Just be sure to tread carefully, and do what you can to get your personal loan or new credit card paid off as quickly as possible and pick the best way to consolidate debt for your personal situation.
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Have you consolidated your debt? If so, let me know how it worked for you by leaving a comment below.
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