Five Ways to Consolidate Debts

Enormous debt amounts create a huge burden in many households. Rather than succumb to debts, it helps to outline a plan for eliminating the nuisance. There are many ways to consolidate and wipe away debts. Granted, there is no overnight solution. Yet, with careful planning and a little self-discipline, you can become debt free in a few short years. Consider the following five surefire ways to eliminate unnecessary debts and bills.

1. Cash-Out Mortgage Refinance

In the past few years, many homeowners refinanced their mortgage loans and obtained lower rates. On the other hand, another group of homeowners took advantage of rising home prices and borrowed money against their equity. A mortgage refinancing with a cash-out option is a way to acquire extra cash for debt consolidation. Because money is taken from the home’s equity, the mortgage balance and monthly payments may increase. Moreover, a refinancing involves certain fees. Still, the funds received can be used to payoff credit cards, student loans, auto loans, and so forth.

2. Home Equity Loan

Like a mortgage refinancing, a home equity loan allows homeowners to receive a lump sum of cash using their home’s equity as the collateral. However, home equity loans are not wrapped into the original loan amount. Instead, homeowners acquire an additional monthly bill. Once a home equity loan is received, the money is used to payoff unnecessary debts. All future payments are submitted to the home equity lender. Because the interest rate on a home equity loan is less than most credit cards, homeowners can expect to save up to 60% on their monthly debt payments.

3. Credit Cards

If used unwisely, credit cards can be a curse. Yet, if hoping to eliminate debts, a zero percent interest credit card may be the answer. For starters, apply for a credit card with a zero percent interest rate on balance transfers. Next, transfer the balances from high interest cards to the new credit card. On average, 0% interest rates apply for the initial 12 – 15 months. All payments made during the introductory period will be applied to the principle balance. The introductory rate only applies to balance transfers. Thus, cardholders must avoid additional charges.

4. Debt Consolidation Services

Debt consolidation services are perfect for persons with excessive debts, especially if the person is a non-homeowner and cannot take advantage of home equity options. With a debt consolidation service, representatives for the company negotiate better rates on credit cards and other consumer debts. Once interest rates are lowered or eliminated, debtors are able to finally payoff their balances. On average, persons using debt consolidation services save 50% a month, and become debt-free within 3 – 7 years.

5. Personal Debt Consolidation Loan

Getting approved for a personal debt consolidation loan is difficult – but possible. There are two types of personal debt consolidation loans. These include secured and unsecured loans. Obtaining a secured loan is easier. However, the borrower must have sufficient collateral. A home equity loan is a type of secured debt consolidation loan. Yet, most people applying for a personal secured loan will use a vehicle title, jewelry, or other piece of valuable belonging as collateral.

An unsecured debt consolidation loan is tricky. In fact, many financial institutions have stopped offering these types of loans. Banks that continue to approve unsecured loans have meticulous requirements. Ordinarily, the applicant must have outstanding or superb credit, and receive a lucrative salary.