For many people, managing multiple accounts can be difficult, including those for credit cards, vehicle loans, student loans, and medical expenses. Often, the first step in debt management is to consolidate these payments into one. If you own a home or if you have good credit, you will have more options to consolidate your debt. But, regardless of your situation, evaluate these debt consolidation strategies before declaring bankruptcy.
Debt consolidation strategies for owners 1 If you are an owner of credit, you must apply for a second mortgage or a home equity line. Ask for borrowed money, with your home as collateral, and use it to pay off your debt. In this way, you will only have to make a single payment to the creditor of the second bond. The downside would be to pay the cost of the loan, over and above the amount of your debt, and if you didn’t pay, you could lose your home. However, the benefit of this type of loan is that the interest is deductible.
- 2 If the interest rates are lower, you can refinance your current mortgage. This procedure is also known as amortization and consists of raising the principal balance and refinancing the bond at a lower interest rate. The mortgage payment remains the same or less and you can cancel other accounts with the capital increase.
Other debt consolidation strategies 1 If you have good credit, you must apply for an unsecured loan. As with the second bond, you can use the loan money to pay off your debt and then pay only one creditor each month.
- 2 Transfer the debt of your credit card to a card with the lowest interest rate. Whether you want to request an extension of the credit line on your card or go to ask for a new rate to obtain a lower interest rate card, usually you need to have a good credit. This solution only serves to consolidate credit card debt.
- 3 Contact a reputable credit counseling agency to sign up for a debt management plan (PMD). You can use these types of programs to consolidate your unsecured debts, including credit card debt, student loans, and medical bills. So it works:
- A credit counselor reviews the status of your debt to determine how much you can pay each month.
- The adviser negotiates with the creditors to get lower interest rates, fee reductions and lower payments.
- You agree the PMD that the credit counselor is suggesting to you and verify that your creditors have accepted it as well. Generally, with a PMD it takes 4 years or more to pay off the debt.
- Monthly payments are made to the credit counseling agency.
- The credit counseling agency pays the creditors directly and pays fees, as stipulated in the PMD.
- Home month, check your creditors’ statements to make sure the credit counseling agency makes the payments as agreed.
- Before using the services of a credit counseling service, check with the Better Business Bureau or the Consumer Protection Agency in your state to see if there are any complaints against the company.
- Choose a credit counseling service that provides information by phone or in person and thoroughly review your financial situation before you are asked to sign a PMD.
- Do not supplement credit counselors who have not received training and certification in debt management.
- If you do not yield yourself in dealing with money and debt, you will not be able to make payments on your debt consolidation.
- The issuer of your credit card can charge you a commission to transfer the balances.