[Disclosure: Cards from our partners are reviewed below.] Debt consolidation is a type of debt refinancing that allows consumers to pay off other debts.
In general, debt consolidation entails rolling several unsecured debts, such as credit card balances, personal loans or medical bills, into one single bill that’s paid off with a loan.
“The company will then use this money to attempt to negotiate with creditors to reduce the amount of principal you pay off.” If you’re considering this option, try to speak with a nonprofit credit counselor first because debt settlement can put your credit in jeopardy.
(You can learn more about choosing a credit counselor here.) If you don’t pay your debt, creditors could hire debt collection agencies, which could lead to a lawsuit, the CFPB says.
Once you’ve chosen a debt consolidation method, it’s a good idea to keep the total cost as low as possible.
Try not to take the maximum amount of time possible to pay off your new loan, and come up with a plan to get out of debt in three to five years.
There are several different types of consumer debt.
However, the most common debts are credit card debt, medical debt, and student loans.
And then there’s the risk of increasing your debt if you fail to make your payments under a debt settlement program.
The following is more in-depth information on the different types of debt you can incur as well as options to consolidate this debt and come up with a debt management plan to achieve lower and more manageable payments.
If you’ve built up some equity and interest rates seem favorable, it may make sense to refinance your home and use the additional cash you can borrow to pay off more expensive debts.
Or you might be better off taking out a home equity line of credit (HELOC) or a fixed-rate home equity loan.
One of the easiest ways to consolidate your credit card debts is to call your current card issuers and ask for a better deal.