There are numerous ways to consolidate your loans. I believe that the first thing you should do is get your credit report and FICO score. This will help decide your options in debt management and lead you on the right path. If it makes financial sense, we will go over a few ways to combine any lingering loans you might have out there and hopefully have a lower rate to save you money.
1. Debt Consolidation Loan
People that have good credit can apply for a debt consolidation loan from a bank or credit union. This way you can combine all your outstanding loans into one new loan. Most people will not be able to go this route as banks don’t like to lend these unsecured loans unless they have a very high score. These also usually have a higher rate as they are not backed by anything.
2. Credit Card Transfers
If you receive or are able to transfer a credit card debt to a new card with a much better interest rate this might be good option. Try to get a zero-percent interest or low introductory rate credit card and transfer your high-interest credit card balances. This only makes sense if you believe you can pay off your new card before the introductory period is over. This method is sometimes called rate surfing.
3. Home Equity Loan and Refinance
This one has gotten a lot of people in trouble these past few years with the housing market crash. People were tapping into their home equity to pay off debt and when house prices went down they were stuck with an underwater mortgage. If you are refinancing, lenders tack the borrowed money onto your new mortgage, increasing your payments and overall balance. Since these loans are broken up over a long period of time they usually take forever to get paid off.
4. Consolidation Agency
If you do not quality for a debt consolidation loan or home equity loan, your best bet may be going with a consolidation agency. Counseling agencies work with creditors to get late fees waived and interest rates reduced. Once you start working with an agency you pay them and they pay your creditors.
5. Renegotiate the terms
Lastly you can always try and renegotiate you loan with the primary lender. Most lenders will work with you as they lose money if you default. They would rather take less payment than none at all.
Debt consolidation may hurt your credit score in the short term but overall it will lead to a greater credit ability. Keep in mind that not all debtors are deadbeats. Everyday people are going through the same problems and are looking for the same solutions in these hard economic times. Don’t raid you future financial security to pay off your current finances.