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What are the ways by which you can consolidate your debts?

By Cassandra_BHM | July 21, 2011

There are some situations that can rob you off your peace of mind and a sound sleep at night. Incurring multiple on your credit cards is such a situation, where you are unable to pay back your debts. It becomes very difficult for you to control such circumstances where you have to keep a record of the multiple credit card bills that have different billing cycles, make payments on all of them and also get creditor calls at odd times. You can therefore choose debt consolidation as your way out of such debt problems. Let us see the ways by which you can consolidate your debt.1.      Taking out a second mortgage – This is the most advisable method of paying back your debts. Taking out a second mortgage means you take out a loan by keeping your house as collateral. Second mortgages come in two forms; home equity loans (HEL) and home equity lines of credit (HELOC). The advantage of second mortgage is that since you are taking your loan with collateral against it, the lenders are more willing to grant you the loan as they know that they would get something in return if you default on the loan. The interest rate they charge is also lower. Also, most of the times second mortgage loans are tax deductible, hence you can save money through tax deduction by transferring your multiple unsecured credit card debts into a secured debt of second mortgage. Thus you can consolidate your debts by taking out a second mortgage. 2.      Zero-percent credit card – If you are not a home owner then it is not possible for you to take the advantages of second mortgage. Zero-percent credit cards are credit cards which are offered by credit card agencies that have zero percent interest rate. You can transfer all your balances in your multiple credit cards to this zero-percent credit card and pay off your credit card debts. The advantage of this is that the interest rate payment is completely done away with. However, there is a catch to the story. The zero-percent interest rate is only available for a limited period of time after which the rate becomes very high. Hence you should take care to make the payment till the offer lasts. 3.      Taking out a consolidation loan – This is the most common method of debt consolidation. You have to take out larger loan that equals or is slightly more that all your debts put together and pay off your debts through this. Then you can pay back this single loan. The interest rate on this loan is lower as the amount of money borrowed is higher. Thus you can consolidate your multiple credit card debts through this method.  You can opt for any of the above three methods, as per the most suitable option for you for consolidating your debts.

Posted in Bankruptcy, Being Frugal, Business, Credit Cards, Economy, Financial Dreams, Financial Planning, Fixing Bad Credit, Reducing Debt | | Print This Post |

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