Before even considering any kind of refinance or consolidation the first thing you have to change is yourself. Think about what happened that got you into debt in the first place: Irresponsible use of credit cards? Impulse buying? Gambling? Whatever it was, make sure that you’re in a position in your life where you won’t be back in the same position in a few months.
How it Works
Once you’ve figured out what caused you to get into financial trouble, then it’s time to do some research on how exactly consolidating your debt works. There are three major types of debt consolidation that you should consider.
- Standard debt consolidation: This is the most common type of debt consolidation. It’s a relatively straightforward process. This process involves getting a loan from a bank, credit union or another form of lender. This loan will pay off your current debt and let you just make payments on a single, new loan. The great thing about this is that your interest late will more often than not be lower, especially if the amount of debt you’re paying off is smaller.
- Balance transfer: This is another option that is very popular among many people in America. The way this works is by paying off your loans with a new credit card in order to take advantage of the lower, introductory interest rates. Keep in mind, this tactic should ONLY be used if you are positive that you will be able to pay off your debt in the promotional period. Failure to do so usually means that the remaining balance on the card will be charged a huge amount of interest, usually around 20% or more.
- Student loans: If you have student loans, like just about everyone, there is a consolidation option that is provided by the federal government. These consolidation plans are usually better than those provided by a bank or other lender. They also offer a much more flexible repayment plan.
So what will this look like in terms of your credit score? There is no evidence that the consolidation loan itself will hurt your credit. There may be a slight dip initially but as you pay off the loan you should see that dip disappear. However, if you fail to pay off the loan or start taking out more loans in order to pay for you consolidation your credit will absolutely go down. That’s why it’s so important to make sure that you are in a position where you will be able to comfortably pay off your debt.
If you do decide that consolidation is the right path for you to take then it is highly recommended that you do a little bit of research on debt consolidation companies. The internet is going to be your best friend on this endeavor. There is all kinds of information and reviews on different lending agencies and banks.
If you don’t have access to a computer then you can always go to your local bank or credit union and talk with one of their lending professionals in order to make a game plan for getting yourself out debt. No matter how you are doing your research keep an eye out for companies trying to sell you something on top of debt consolidation. This is usual a big red flag. Also, ask as many questions as you need to and read absolutely everything that you sign.