The Most Effective Forms of Debt Consolidation

You’ve maybe heard of debt consolidation as a way to get ahead on your financial obligations. But you might not know there are several ways consumers can accomplish it.

Here are some of the most effective forms of debt consolidation:

Investigate Credit Counseling and Debt Management Plans

A credit counseling agency should be your starting point if you’re working through debt issues. These are typically non-profit organizations that specialize in helping consumers get a hold of their finances. They provide basic services like budgeting, getting your credit reports and supplying educational materials.

Credit counselors can also help set up a debt management plan (DMP) for you. This is a type of debt consolidation where the credit counselor works with your lenders to get you better repayment terms as well as overseeing payments to your creditors.

Credit Card Balance Transfers

Balance transfers are another way to consolidate debt. Done correctly, credit card balance transfers are a highly effective method of consolidation. One of the biggest perks of credit card balance transfers is their enticingly low introductory interest rate. The new account might have a zero-percent APR for as long as 18 months. That’s a fantastic deal if interest rates are currently gouging you in the high teens or more.

While the introductory low-rate period is a huge bonus, it’s important you make some headway on your debt during that time. Otherwise, you might be in trouble when that intro period comes to a close. At that point, your debt will start accumulating interest again—potentially at an even higher rate than before your balance transfer.

Debt Consolidation Loans

People with lower credit scores likely aren’t going to be able to qualify for credit card balance transfers. In this case, you will want to start looking at other forms of consolidation loans. When applying for debt consolidation, it’s important to keep a few things at the top of your mind.

For starters, you want to know exactly what loans make sense to consolidate, and which ones you want to keep on their own. Loans with a lower interest rate might be better to keep separate, while higher interest debt can benefit from consolidation.

One of the big reasons it can be better to get a debt consolidation loan is you can consolidate more forms of debt, including student loans, medical bills, and personal loans. This offers you far more flexibility than what’s possible through a credit card balance transfer.

Home Equity Loans

You can also leverage your home in order to consolidate debt. Borrowing against it allows you to eliminate many or all of your current debts and pay off a long-term loan at a lower interest rate.

This can be a good form of consolidation for those who feel confident in their financial health over time. It’s important to note, however, this can put your home in jeopardy if you fail to pay your debt.

Other Options Beyond Consolidation

For individuals that need something more intensive than consolidation, other debt relief options might work better than consolidation. It really only makes sense to consolidate your debt if you think it’s going to help you pay down those loans. If not, you’re better off putting your energy elsewhere.

Debt settlement is one option available to people who don’t think they can get out of debt through consolidation. This is where you send money to a debt relief company and they try to use that as a bargaining chip to settle your debts with a single payment in full. While this can work if you’re in really dire financial straits, do your research to make sure it’s the best option for you.

Bankruptcy is another option that is completed by about 700,000 individuals each year. Both settlement and bankruptcy are likely to hurt your credit, and can lead to prolonged financial pain. It’s best to beat your debt through consolidation if possible. There are several ways to consolidate debt. Finding the best one for your situation can help you get to a better place financially.

Thanks to Amara Etter