Why Use Debt Consolidation Loan?
When looking at debt consolidation as a way to manage your personal finances and possibly remove financial stress, Match Financial can help. Compare multiple lenders for debt consolidation to get your finances under control by paying off other debts.
This type of loan works best for consumers when the interest rate of such a loan is lower than existing debts, such as high-interest credit cards or other loans. The interest rate provided to you by a lender depends on your credit profile, and rates vary by lender. Lender rates often depend on your credit history and ability to repay as well.
When debt consolidation is done correctly, you are able to save money every month, pay down your debt faster, and eventually be free of the burden your cards and loans created. There are several ways to work with debt in order to consolidate.
How to Consolidate Debt?
There may be different methods in figuring out to consolidate debt, but the fundamentals are the same. To consolidate debt you will combine various medical loans, credit cards and other unsecured debt into a single monthly payment with a lower monthly interest rate.
You make the monthly payment for the set amount of time and eventually you will have paid off all of your debts. There are several methods when you are trying to figure out how to consolidate debt. The various approaches are covered below.
Use Assets to Pay off Debt?
Use Assets to Pay off Debt – If you have equity in your home or a large balance in your retirement accounts, you may choose to make a withdrawal from those accounts or arrange a loan against the balance of those accounts to pay off debt.
A loan from your 401k, for example, might be enough to cover all of your smaller debts. The payment for the loan will then either come directly out of your paycheck or you will send it once per month. Be aware that borrowing against your home may put your home at risk if you fail to make payments, which may make this a risky option in the choices for how to consolidate debt.
Transfer Balances to a Credit Card?
If you open a new credit card with a zero percent introductory rate, you can use that cars to pay off other debts. The promotional APR will likely last between twelve and twenty months, so the goal is to transfer debts to the new card and pay off the total balance before the introductory period ends. Having no interest will allow your payment dollars to stretch quite a bit further than you’d expect. Learn more about Balance Transfer Credit Cards
Debt Consolidation Loan?
You can take out a new loan specifically for debt consolidation. These are fixed rate loans that usually offer a lower APR than a credit card or short term loan. Apply for a debt consolidation loan if your credit score is in reasonable shape. Then pay off all of your other debts with the proceeds of the loan.
Once everything else is paid off, all you have left is the single monthly payment that should be less than the other debts combined. If you have poor credit, you will have fewer loan options to consider, but shop around and you may be able to find options that work with your situation.
Debt Management Plan?
A debt management plan is not a debt consolidation loan but it might be a good way to figure out how to consolidate debt. A debt management plan is a combination of financial counseling and a payoff strategy. If the credit counselor determines that you are a good fit for the program, he or she will contact your credit cards to negotiate the lowest possible rate. Then the counselor will help you set up a payment program with the non-profit company to gradually pay off your debts. This plan may require closing your credit cards.
Debt settlement is similar to a debt management plan, but it is the do-it-yourself version and it might have a substantial impact on your credit score. To settle debts, you call your debts and negotiate a pay off amount or a payment that is less than what you actually owe. If you have a credit card balance of $5,000, you might call and negotiate that balance down to $2,800. Then you work on paying off the $2,800 which will clear the debt.
Settled debt is the same as debt forgiveness which can be reported to the IRS as income, and the settled debt will be reflected negatively on your credit report. The stain from the settled debt can last for up to seven years, which makes debt settlement the last choice in how to consolidate debt. Use it only when all other options have failed.
Getting ahead of your debt is always a good idea. Paying down balances is smart and will allow you greater control over your bills and budget on a monthly basis. Once you decide to attack your debt, often the biggest determination is simply how to consolidate debt in a way that works for you.