The following four steps will walk you through calculating how much debt you have, choosing the debt consolidation loan, setting a timeline to be debt free and teaching you how to control your spending.
You can take out a personal loan to pay off existing debts and then work to pay off that loan over time.
Some people even open a new card with a 0 percent APR for a promotional introductory period (many of these run the gamut from six to 24 months) and transfer other balances over to that card.
“If you’re not absolutely positive that you can pay off your debt in that time frame or if you think you might struggle with building up your debt on credit cards once again, I think getting a new credit card is probably not a good idea,” said Germano.
Cash-out refinancing involves replacing your mortgage loan with a new one for more than you owe, taking part of the difference between your old and new loans in cash. A home equity loan gives the borrower access to home equity in cash, which can be used to pay off other debts.
It is also not a fit if you do not have a consistent source of income that more than covers your monthly payment.
Finally, bad credit can keep you from getting a good interest rate, which negates the purpose of a consolidation loan.
If you know that wouldn’t be overwhelming to you, that makes a lot of sense.
If you know that you’re not great at keeping up with your payments without someone reminding you to, looking into credit counseling or debt management options is a good idea.” According to Germano, a good rule of thumb is this: Consolidation is not a good option if your debt is more than 50 percent of your income.Determining which method will benefit you the most will involve some homework and some calculations … can take many forms, including a personal loan, a balance-transfer credit card, a home equity line of credit (HELOC) and a debt management plan, among others.(We’ll get into the details of those options later on.) No matter what strategy suits you best, the idea is the same: Lump together all or most of your debts into a single payment as a way to save money, simplify your finances … For example, if you have multiple high-interest credit card debts and outstanding medical bills, you may want to take out a personal loan to repay those debts.Some people prefer a DIY debt management plan, while others benefit from simplified singular payment of a debt consolidation loan.“Debt consolidation really depends on the person and the type of debt,” Germano said.Then you can focus on repaying that personal loan, which requires just one monthly payment and, ideally, has a lower interest rate than what you were paying across multiple debts (it may not have a lower rate, but it’s in your best interest to find the lowest one you can).