What is the best way to consolidate your debts?
Published Wed, Jan 12, 2011 Updated Tue, Feb 16, 2021
If rising debt has become a nightmare and it has become very difficult for you to handle your multiple debts, then you can consider a debt solution called debt consolidation. The next question that comes to your mind is “what is the best way to consolidate debts”.
Before we move on to that, it is important to understand what debt consolidation is. Under this process all your multiple bills are combined together to form one outstanding debt. Interest rates are reduced and late fees and other charges are also waived off and you only have to make a single monthly payment.
There are many ways in which you can consolidate your debts . However, the three most important ways are as follows.
1. Consolidating your debts yourself
If you are confident that you can manage your debt yourself, then you can consolidate all your debts by yourself. This will save you the fee that you would other wise need to pay to the debt consolidation company. When doing this yourself the first thing that you have to figure out is how much debt do you owe precisely. Once you find this out you have to decide on how you will pay it off. You will get an idea as to which debt you need to pay off first. You can borrow from your retirement funds in order to consolidate your debts. Two other ways that you could adopt when consolidating debt yourself are as follows:
Take out a home equity loan
You can use a home equity loan to consolidate your debts. If you have accumulated enough equity on your home, then you can discuss with your lender and opt for this solution. In this case you will be borrowing money from yourself so you will be paying back yourself. Thus, you may save on interest and late fees.
Take a loan on life insurance
You can take out a loan on your life insurance policy as the policy can be used as collateral. The advantage that you get is that you do not need to pay the money back to the insurance company. If you do not pay it back, then the same amount is deducted from the maturity amount and given to your beneficiaries.
2. Taking out a debt consolidation loan
You can take out a debt consolidation loan to pay off your other loans. It is very similar to taking out a personal loan. You can pay off all your creditors with it and then pay only towards the consolidation loan. Such loans have long repayment terms so you can pay it off conveniently. Another advantage of taking out a consolidation loan is that the interest rates on such loans are comparatively much lower than the rates that are charged by creditors. Thus, the total amount that you need to pay is reduced.
3. Enrolling in a debt consolidation program
If you think that you will not be able to handle your debts yourself, then you can take the help of a debt consolidation company in order to consolidate your bills. When you take their help you are enrolled in a debt consolidation program. Your financial situation is assessed properly and, based on that, a single monthly installment amount is decided. The company negotiates lower rates of interest from your creditors and also requests them to waive off your late fees and other charges. You have to make a single monthly payment to the company and this is distributed among your creditors. The company is able to negotiate better as they have professionals to do so. You also pay less and are free from the harassing calls of creditors.
It’s important to understand that there is no best way to consolidate your bills. It depends entirely on your situation and on your preferences.