Debt consolidation is a type of loan which can help you with paying off multiple debts in one go. You have to pay back student loan along with a number of credit card loans and unable to do it, consolidating your unsecured loans into one single loan may be your answer. But you need to know some factors before considering applying for a debt consolidation loan because everything has its pros and cons. Therefore, you should compare all the points and decide what is best in your situation. 

  1. Debt consolidation means refinanced loan with extended repayment terms.
  2. Extended repayment terms make you pay a debt for longer.
  3. It is not guaranteed to get a low interest rate always on consolidation of debt.
  4. It may simplify debt but does not erase it.
  5. Debt consolidations is not debt settlement.
  6. Debt consolidation works if you change spending habits.

A debt consolidation loan can be applied through banks, credit card unions especially if your payment history is good. But if rejected for a loan there are other options like private lenders and mortgage companies.

There are many ways for consolidation of debts, which you can use in different circumstances. To use these debt consolidation loan options, you must learn about their eligibilities, availabilities, requirements and conditions. It is important to search carefully in advance before signing on any contracts. 

Some methods of getting debt consolidation are following

The nonprofit credit counselling organization

You can work with a credit counselling organization to get advice on your credit issues, debt management, budgeting and financial situation, to deal with your financial challenges.

The credit counselling may help you by negotiating with your lenders to approve low interest and waive off any charges. 

Some credit counsellors may charge you with some fee for their services and you may have to agree with their debt-management plans.

Personal loans

You can always use a personal loan to pay off your multiple debts. So instead of paying back various credit card loans every month, apply for the personal loan. Interest rate is based on the credit score, income and other financial details. 

Many personal loans are mostly unsecured and need no collateral. Personal loan offers flexible terms of repayment and you may get to pay back a loan for the next three to five years. 

Some lenders charge an origination fee, which will cost you with hundreds of dollars and burden you with more extra charges.

Balance transfer credit card

A balance transfer credit cards offer you to transfer your various balances from multiple credit cards to one credit card. Balance transfer credit cards offer 0% introductory APR for a certain period of time. If you avail this introductory offer and pay off your loan without interest charges, you may able to save thousands of dollars.

Instead, some cards demand a balance transfer fee which adds to the debt you must pay. You cannot use cards issued by the same credit company for transferring your balance. 

Home equity loan

If you are a homeowner, you can borrow against your home. Interest rates are mostly low on home equity loan than on personal loans. But you can lose your collateral if unable to pay back a loan. 

You should make a plan to live while managing your finances and avoid getting under debt.