The road to debt free living is filled with obstacles that often seem impossible to overcome. Trying to repay past and current debts while at the same time saving money to prevent future indebtedness is a challenge that many people find overwhelming. To reach your goal and eliminate high interest debt that threatens your financial security, you must consider all options available. Debt consolidation is one of the more popular ways to reduce debt, however there are right and wrong ways to go about this process. Here we look at debt consolidation options that have been used successfully by others in your position.
One of the easiest and most commonly used methods of debt consolidation involves transferring high interest credit card debt to a new credit card featuring a lower interest rate. Balance transfer offers from credit card issuers are starting to make a comeback after taking a hiatus in the months following the recession. Banks are once again extending offers to qualified consumers which allow card holders to move balances from one account to another. Although 0% balance transfers are not as common as in the past, low interest rates are being offered to eligible card holders. By transferring high interest balances to a card with a significantly lower interest rate, consumers can pay down their balance more quickly as more of the payment is applied to the principle versus interest charges.
Debt consolidation companies or credit counseling agencies have seen their fair share of business from customers struggling through a financial hardship. Companies providing debt relief services have come under fire for unfair business practices however the right company can help reduce debt balances. The key is finding the right company which requires research by the consumer before signing any contract. Debt consolidation services provided by a company involve negotiations between the company and the creditors to lower interest rates and waive penalties and fees. The consumer then pays the agency a pre-determined amount each month which is then split up and applied to individual account balances.
Home Equity- Line Of Credit
Home equity loans or lines of credit allow consumers to borrow against their home to pay off other debts. The interest rates on these types of loans are generally much lower than that of credit card accounts, however there is one major drawback to this type of consolidation. By using equity in your home to pay off high interest credit card balances, borrowers turn unsecured debt into secured debt. This means failure to pay the new loan could result in the loss of your home or other collateral. This method of consolidation should be carefully considered to ensure long term success.