Debt Consolidation: Three Choices to Consider

Are you one of the thousands of Americans struggling with snowballing credit card debt? Do you feel as if you can never repay your student loans? Do you have medical or dental bills that are nearly impossible to pay each month? If so, you may be considering debt consolidation. Debt consolidation sounds difficult to understand, but put simply, it is a way to “consolidate” all your current debt into one lower monthly payment. This is a way for you to find some light at the end of the tunnel, and have a few extra dollars left each month.

There are a variety of options people consider to combine their debt into a lower payment.  Here are a few of them to think about, to help you decide which option would be right for you:

1. Borrowing money from family or friends.  Some people choose to go to a wealthier relative or even to their parents and ask for a loan. They are often able to secure a lower interest rate by doing this.  This is not the most preferable method of paying down/consolidating debt because often loans from family members end up ruining relationships. Why risk harming a family relationship over money? If you do end up borrowing from a family member, be sure to have a legal contract drawn up, and always make the payments on time.

2. Home Equity Loans or Lines of Credit. These loans are based on the value you have in your home, so obviously, you must own a home to consider this option. A home equity loan is preferable to a home equity line of credit, as the interest rate is usually fixed. Remember, you are using your home as collateral, so should you choose this option, you risk losing your home if you can not make a payment.  A real advantage to a home equity loan is that the interest rates are so much lower than credit card interest rates.

3. Traditional Debt Consolidation Loans. This is another method of paying off your debt with one loan. You must have a steady source of income for this loan, and you may have to have a co-signer, depending on your credit score. When looking into a traditional debt consolidation loan, take into consideration the initial fees and the interest rate. Figure out how much money you would save monthly. Ask the lender if the loan will have any negative impact on your overall credit score.

In conclusion, there are several good options to consider if your debt is just too high for you to handle. Seek wise counsel before deciding which option is the best for you.