debt consolidation loans

How To Consolidate Debt

If you’re reading this, you’ve likely come to a point in your life when you realize your level of debt is out of control and you need to consolidate. Recognizing the problem is just the first step toward debt consolidation. Here are seven other steps that can help you consolidate your debt.

Step Two: Prepare Yourself

Taking the step toward debt consolidation can be huge. You may feel like a failure. You may be fearful of taking the next step and what that may mean to your credit and your future. Maintaining a positive outlook is essential. Focus on becoming debt free. Understand that it will not happen overnight. It is a process. Prepare yourself to take the time to go through that process.

Step Three: Determine Your Goals

Debt consolidation is not for everyone. It is not always the right answer. Be sure you weigh the pros and cons before moving forward. That means understanding what you hope to achieve. Debt consolidation can provide you with:

  • A single, monthly payment at a lower interest rate
  • Better control over your current debt
  • Peace of mind and less stress

Step Four: Review Your Current Situation

Before you decide that debt consolidation is the only out for you, ask yourself:

  • How much debt do you currently owe?
  • What is the current interest rate you are paying?
  • What types of debt do you have (i.e. credit card, car loan, home mortgage)?
  • Can you be out of credit card debt within five years just by making your regular monthly payments?
  • Can you do it yourself or do you need the assistance of a debt consolidation service?

Step Five: Look at DIY Debt Consolidation

Depending on your level and type of debt, you may find that you can consolidate without the help of an outside professional. To determine whether do-it-yourself debt consolidation is right for you, check out Bill Consolidation. 

There are options available without the assistance of a debt consolidation company. Homeowners may want to get a home equity line of credit (HELOC). Or you may choose to refinance your car loan. If your debt is due to credit card debt, you may be able to roll high interest rate cards over to lower interest rate cards via a balance transfer or by obtaining an unsecured loan. 

Step Six: Consider Credit Counseling

Ultimately, you may find that you need professional help to manage your debt. In that case, credit counseling can provide you with the services of a certified debt counselor who will help you develop a monthly budget.

Additionally, you will have the option to get assistance creating a debt management plan (DMP). Debt management plans allow you to make one monthly payment that is distributed among your creditors and generally at an interest rate below what you are currently paying. 

Step Seven: Is Debt Settlement the Answer?

Debt settlement is different from credit counseling and debt management. Debt settlement focuses on negotiating with your creditors to reduce the amount you owe.

You can choose to tackle this yourself or leave it in the hands of a debt settlement expert. When done right, debt settlement programs can reduce your debt by 50% or more. With a reduction in the amount you owe, you have a better chance of becoming debt free faster. Debt settlement programs typically take two to four years to complete.

Step Eight: Consider a Cash-Out Refinance Loan

If you have a home and don’t have a home line of credit, you may want to refinance and take cash out to pay off your other outstanding debts. However, while the interest rate on a refinance is typically lower than on standard credit cards, you put your home at greater risk of foreclosure by incorporating unsecured credit card debt into your secured home loan.

Choosing to consolidate debt is a matter of choosing to go it alone or to seek the services of a professional. Whichever method you decide is right for you, be sure to take the time to review all your options.