There are likely as many debt consolidation programs and debt consolidation companies available these days as there are cars on the road. That doesn’t mean you want to break the speed limit rushing into a decision.
Take your time. Do your research. Ask a lot of questions. Learn what you need to know about debt consolidation programs.
Factors to Consider When You Choose Debt Consolidation Programs
You’ve finally decided to investigate how debt consolidation may benefit you. Before you select a debt consolidation program or service for your specific needs, consider these five factors.
- Debt amount. Most debt consolidation companies have a minimum and a maximum amount of debt they will consolidate. If you have a significant amount of debt and own your home, your best choice may be to obtain a cash-out refinance with your home lender.
- Fees and costs. Other than the interest rate that you pay on the loan, there may be additional fees you are responsible to pay. Read the fine print and visit Debt Consolidation Loan for more information.
- Eligibility. Not all borrowers are eligible for all debt consolidation services and loans. You may need a certain income level or credit rating.
- New interest rate. Make sure the interest rate for the debt consolidation program you choose places you in a better financial position than your current rates. Additionally, it makes a big difference whether the interest rate is fixed or variable.
- New Monthly payments. With your new interest rate, your monthly payments should be lower. However, making a lower monthly payment for a long-term loan isn’t always your best option. It ultimately might cost you more. Be sure to consider the length of the repayment period and interest rate to determine the full cost of the loan.
Compare Debt Consolidation Program Options
When people begin talking about debt consolidation programs, they immediately assume that means finding a company that offers debt counseling, debt management, debt settlement, and similar programs.
However, you can consolidate your debt on your own by securing one of these loans:
- Secured Loan. Available through your lender, a secured loan (like a Home Equity Line of Credit) requires you to provide collateral, generally in the form of a home or car, and have a high credit score. There may be costs associated with this type of loan, such as origination fees. However, the interest rate is among the best.
- Unsecured Loan. Many banks, credit unions, and other financial institutions offer unsecured, high-interest loans that require no collateral. One of the most familiar is a credit card. However, unsecured loans are generally available only to individuals with a solid income and a higher-than-average credit score.
- Peer-to-Peer Loans. These are relatively new and can be found on several internet sites. They typically offer loans for small businesses; however, individuals can apply for a loan for any reason. The loans are relatively small, usually not more than $50,000 and the interest rates can be high; as much as 35% depending on your credit rating. Additionally, repayment periods are short-term, usually five years or less.
Other types of debt consolidation options include:
- Balance Transfer Loan. A popular form of debt consolidation using an unsecured loan is credit card balance transfers that allow you to consolidate other credit card debts into one. In many cases, a transfer balance offers an introductory period with zero interest for anywhere from six to twelve months.
Finally, there are also debt consolidation programs offered by debt settlement companies. This type of debt consolidation program offers borrowers:
- Debt Consolidation Services. Services available to you include credit counseling, budget development, financial education, debt management, debt consolidation, and debt settlement.
- Convenient Payments. One of the greatest advantages of consolidating your credit is that you end up with one convenient monthly payment allowing you more control over your financial future.
- No Collateral. Debt settlement companies don’t require collateral to secure a loan, so you don’t have to put your home or vehicle at risk. However, as with any unsecured loan, the interest rate is higher.
The goal of all debt consolidation programs is to provide borrowers an opportunity to get back on their feet. It’s all a matter of choosing the right type of program for your particular situation.