Finding the Best Form of Debt Consolidation

Finding the best form of debt consolidation is essential to your debt relief efforts in that regard. The best place to start is gaining an understanding of your current financial situation, as well as your goals and objectives. Then you can explore the pros and cons of each option to help you choose a solution that works well for you. 

With that in mind, here are the most common forms of debt consolidation.

Balance Transfer Cards

Balance transfer cards are credit cards that allow shifting balances to a card with a better interest rate and or repayment terms. They generally come with favourable interest rates for a given period of time, such as zero percent interest on transferred balances for 18 to 24 months. 

The key here is to pay off the transferred amount before that window closes. Otherwise you could find yourself paying even more than before you shifted the balance. You also need to watch out for annual fees and transfer fees. 

Home equity Loans/Lines of Credit 

A home equity loan or line of credit is a loan against the equity you have in your home. These loans tend to have the most favourable terms, as they’re backed by collateral the bank can seize if you fail to repay the loan. This is also the biggest drawback to this form of debt consolidation. If you do not meet the terms of the loan you can lose your home. 

Personal Loans

A strong credit score and a steady income qualify you for another form of the best debt consolidation loans. You can use personal loans to pay off your existing balances, effectively combining them into one debt. 

The advantage here is lower interest rates and possibly a shorter payoff time as well. Again though, the interest rate you get depends heavily upon your credit status — as will the amount for which you’ll qualify.

Pros and Cons of Debt Consolidation

Pros: 

1) Lower interest rates.
2) Lower monthly payments.
3) More flexibility to pay back loans at different intervals.
4) Some loan providers offer a fixed APR that does not change over the life of the loan. For instance, some will provide a fixed 2% APR for the lifetime of the loan.
5) Faster approval process with some lenders requiring more documentation than standard credit card applications.
6) The lender can help you find affordable repayment options, such as forbearance or deferral options on the loan.
7) Lenders typically have lower origination fees on loans versus credit cards, which can save money.

Cons:

The biggest concern with consolidation is making sure the interest rate of the solution you choose is lower than the aggregate of rates you’re currently paying. You must also be careful to ensure the length of the new loan won’t ultimately see you paying more than you would have because of the added payments.  

Factors That Determine the Best Form of Debt Consolidation

Repayment Term: The necessary factor to consider is the term length. The shorter the repayment period, the quicker you can pay off your debts and reduce your overall payment amount.

Interest Rates: You should know which interest rates you get with each option so that you can be sure your financial plan will work out for the long term.

Existing Debt: When you consider the best form of debt consolidation, it is essential to assess how much debt you already have. You’ll need to consider how much you owe, what loans you have, and what your interest rates are before deciding which form of debt consolidation works best for you. 

One more thing, it’s is very important to avoid creating more debt after you deploy a consolidation plan. This will only dig a deeper hole out of which you must climb.