If you are in debt, then it?s likely that you?ve heard of consumer debt consolidation. But even though the term is commonly used, many people still don?t understand how to go about reducing their debt.
Debt Consolidation is the act of lumping all of your debt together, and then paying one monthly payment, usually lower than if you were to pay them all separately.
Here?s eight ways to go about it.
The first option is to transfer all of your balances to the credit card with the lowest interest rate.
This will allow you to continue to make the minimum monthly payments if that is all you can afford, although you would pay off your debt quicker?and with less money?if you paid more on the balance each month.
Your next option is to take out a home equity loan against your home, and then use the cash to pay off all of your debt balances.
This is a great consumer debt consolidation loan because the interest rates are generally lower than other methods.
Another great way to consolidate your debt is to apply for a debt consolidation loan.
Some lending companies specialize in these types of loans, but you should know that the interest rates on these types of loans are typically higher.
You can also refinance your home and use the lower monthly payment that you?ll get from lower interest rates to pay off your high interest debts.
Using a credit counseling company can also help you manage your debt.
These companies work with your creditors to combine all of your debts into one lump sum. Most of them offer a service that will allow you to pay them your monthly payment, and then they will in turn pay your debtors.
It?s important to select the company carefully because if you chose one that has a habit of paying the payments late, it will negatively affect your credit history.
Debt settlement is another form of consumer debt consolidation, but it should only be used in the most extreme cases. In this method, the consumer will stop paying all their bills, and instead start depositing the money in an account especially designed for the process.
Then the debt settlement company will work with your creditors and negotiate a reduced rate of payment?sometimes as much as 50 percent of the original balance.
Beware that by negotiating your debts in this manner, your credit rating will be negatively affected.
If you have a retirement account, you won?t need to qualify to take out a loan against it.
When considering this type of consumer debt consolidation, make sure that you?re young enough to rebuild your retirement savings.
In addition, there is a tax difference in whether you do an early withdrawal, or a loan, so be sure to look into the specific requirements of your type of retirement plan before making a move.
Lastly, and arguable the best consumer debt consolidation method is to do it yourself.
Do this by committing a certain amount every month, and then rapidly paying off your debt.
Begin with the highest rate loan, and work your way down from there.