Being debt-free is the best way to live. It does not mean having no bills. It means being able to pay your bills each month and having money left over for some things you want. If you are in debt and find that you need a way out of it, the ideal way to go may be to consolidate your debt. Here are some tips on the best way to consolidate debt and start moving toward a debt-free life.
The method you choose will depend on how much debt you have, what kind of debt, and how much your income is now. The best way to deal with debt is to pay it off completely. For most people, though, that is going to take some time.
Balance Transfer Credit Cards
If your credit card debt is not excessive, you may be able to put it on a new one that allows balance transfers. This type of credit card could help you lower your debt faster because they often come with zero interest or low interest for a year or more. You will need good credit to obtain one. At the same time, be sure not to add any new debt to the card to get the best benefit from it.
One thing to watch for with this type of credit card is that some of them will charge a percentage of the amount transferred. Other ones do not charge at all.
It is not recommended to close any credit card accounts – even if you plan on never using them again. It could affect your credit score negatively. The length of time you have credit, as well as how much, are two factors that determine your score.
Taking out a personal loan is another commonly used option to consolidate debt. It will enable you to put all of your debt on one loan. This gives you just one low payment per month. When you get the loan, you pay off all of your bills with it. Then, all you have left is the single payment to the lender.
This method is good if you cannot get a balance transfer credit card or if you have debt on other loans besides credit cards. When getting a personal loan, you want to be sure to get one with a low-interest rate. It should be lower than the rate on your credit cards. This method works by making your monthly payments smaller and extending the repayment time on the debt. It also lowers your interest rate. However, the longevity of the loan may mean you will pay more interest over the life of the loan.
After you get the personal loan, do not add more debt. Make sure that you pay it off completely and then only add debt within your budget. Always make sure you can pay it off with your current income.
Debt Settlement Companies
This is your last option because it is not a good one. You submit all your bills to the company, and they will first attempt to negotiate a reduced balance with each company. Then, they will give you a loan to cover the balance owed.
While the debt settlement company will decrease your overall debt (which it cannot guarantee), they will also close your credit cards . This could damage your credit score. Also, when legal debt is reduced in this manner, a negative report is usually added to your credit report, which could also have a negative influence when it comes time to get a new loan.