The need to consolidate your debt might occur for various reasons such as multiple creditors, different due dates and accounts, and payment amounts. Debt consolidations in these cases can be a good option as it multiple debts into a single payment. Besides simplifying your debts and finances, it can additionally save your money from interest rates and help you pay off your debts faster. Professionals from title loans Houston provided us with insight into several ways to obtain debt relief with its characteristics, as each of them is suitable for a certain situation and has its pros and cons.
1. Debt management program
The purpose of the debt management program is to reduce the interest rate referring the credit card debts. This method summarizes all your credit card debts into single affordable monthly payments. The installments are paid to an agency that will pay your creditors. Therefore, for a debt management plan you need to choose a non-profit credit counseling agency that will negotiate with your creditors and create a pay-off plan. Debt management considers canceling all your credit cards. You will receive monthly statements from your creditors about your debt payment movement.
2. Credit card balance transfer
This method considers transferring several credit card balances into one card with very low or even 0% of interest rates for an introductory period of up to 18 months. Although this seems like a great solution, to be qualified for this strategy you must have at least a 680 credit score. A balance transfer is usually offered to new and existing clients for making a new business for banks. This allows you to pay off your credit card debt before expiring the APR period with a minimal interest rate. However, if you default to accomplish paying the entire balance, you risk getting an even higher interest rate than the one you started with.
3. Home equally Loans and lines of credit (HELOC)
Home equality considers the amount between the appraised home value and the amount you owe on your mortgage. If your home value and your credit history are high enough, you can borrow a part of that equity with an affordable interest rate to consolidate your debts. This method can be convenient for paying off the debts with high interest, such as credit cards.
When considering these types of loans, you have two available options. First is a home equity loan that offers a fixed rate for a lump sum. Second is HELOCs which provide a credit line at a variable rate. Both of these options appear as second mortgages, meaning you will be added with another monthly payment.
4. Peer-to-peer loans
Peer-to-peer loans consider associating borrowers with a network of lenders without middlemen. Peerform is a lending platform where those who look for loans can directly connect with those who are willing to invest. Applying for a loan considers the same evaluation factors as traditional loans, however, the criteria for approval are usually less stringent. The application process is relatively simple and is completely conducted on the internet. On the platform, investors offer their loan terms and interest rates which borrowers can accept or not. On the other hand, borrowers are filling out the application, and, based on their financial status, the platform is setting their risk category.
Every of the mentioned methods of debt consolidation has its pros and cons and hopefully has helped you to narrow your choice and comprehend the one that best suits your overall finances. When deciding on your debt consolidation strategy consider your financial abilities, lenders’ terms, interest rates, and fees. It’s also equally important to consider if your potential lender is legitimate.