In today's world of easy money and fast credit, it is really easy for someone to get in way over their head with credit card debt. Most people will find themselves with more bills than they can afford to pay each month. It is more and more common for people to have multiple jobs and still not make enough money to pay all of their bills. If you think you fit into this situation, then debt consolidation may be the right option for you.
When you consolidate your bills, you make things easier on yourself financially in several ways. First of all, the amount of money you have to pay each money is usually a smaller amount, which means you have some extra cash each month. Second, the interest rate on a debt consolidation loan is usually MUCH lower than the credit card debt you had. You will end up paying a less interest and get out of debt faster. Third, it is easier to keep track of the money coming in and going out when you only have one bill to pay each month instead of several different accounts. This can help get you organized about money.
When you consolidate your outstanding debts, you allow a lender to pay off all of your existing debts and then you pay the new lender instead each month. The new consolidation loan works out for both you and the lender since the lender gets your business and you receive a lower monthly payment and pay less interest overall.
If you are someone that is deep in debt, trying to consolidate your bills seems like a really easy decision. It is a very good thing to do in most cases, but there are some things you need consider first. You want to make sure you get the best debt consolidation loan for you.
If you own a home, home equity loans tend to offer the lowest interest rates. Be forewarned that you may pay more interest overall even though the rate is lower than other types of loans. Home equity loans offer very long repayment terms. You should always shop around for the best home equity loan to see if you can get the best interest rate.
If you would like to consolidate your bills, but would rather have an open line of credit to use as you see fit, then you should consider a home equity line of credit instead of an home equity loan. This allows you to consolidate your bills into one low payment but have an ope line of credit as well. You can draw upon this line of credit, should if you suddenly need money. Having a HELOC (Home Equity Line of Credit) can be a great option for an emergency fund while you are paying off credit card debt.
If you do not own a home then a personal loan is a highly popular way to consolidate bills. While a personal loan does not have the lowest interest rates, they do not require any collateral either. Personal loans are fairly easy to get (even with bad credit) as long as you have steady income each month.
You can also use a credit card to consolidate bills into one payment. A credit card will usually offer you a lower interest on balance transfers than you would pay on regular charges, and the monthly payments can be much smaller. Take caution! With low monthly payments AND the ability to use the card to make purchases after you transferred the other balances onto your card, this method takes self control. If you take a long time to pay off your debts by making just the minimum payment, you will have to pay a lot of interest charges.
With all of these options open to you, it is not hard to find out which type of consolidation loan is the best for you. The lowest interest rate or smallest monthly payment is not the only thing to consider about a new loan. If you do not have self control, then using a credit card to consolidate bills can be a disastrous idea and only make things worse for you.
Remember the long term plan is to not have bad debts (car loans, credit card debts) in your life. If loan consolidation allows you to get your life back on track then do it! Get those bills paid off and get ready to win with money!