In today’s world of invisible money and fast credit it is easy for anyone to get over their head with debt and find themselves will more bills than they can pay. It is very common today for people to have two jobs and still not make enough money to keep up on all of their bills. If you think you fit into the situation I am describing then debt consolidation may be right for you.
When you consolidate bills you make things easier on yourself in several ways. First of all the amount you have to pay each money is usually lower, which means you can finally manage to keep progressing forward with your finances instead of trying to swim upstream. Second, the interest rate of a debt consolidation loan is usually lower than the various other loans you had to begin with so you end up paying less interest. And third, it is easier to keep track of your bills when you only have one lender to pay each month instead of several. This helps keep you organized.
In essence, when you consolidate bills you are allowing a lender to pay off all of your debts and then you owe that lender instead. Since the lender is now going to get payments from you that are larger than what you paid any one specific lender that you previously owed, the bill consolidation lender gives you a lower interest rate. In other words, the loan works out for both of you since the lender gets extra money and rewards you will a lower monthly payment and less interest.
If you are someone in debt, trying to consolidate bills seems like an easy decision. And it is indeed a very good thing to do, but there are some things to consider first because you want to make sure you get the right debt consolidation loan for you. If you own a home then home equity loans tend to offer the lowest interest rates. You should shop around for home equity loans to see if you can find a lender in which you qualify and to compare rates. If you would like to consolidate your bills but have an open line of credit as well then you should consider a home equity line of credit. This allows you to consolidate your bills into one low payment but have a line of credit open as well which you can draw upon if you suddenly need money. This is a good choice if you have upcoming large expenses that you would like to incorporate into your loan.
If you do not own a home then a personal loan is a popular and effective way to consolidate bills. While a personal loan does not have interest rates as low as home equity loans, they do not require collateral and are easy to get with a bad credit score as long as you have enough of a steady income to make your payments each month.
You can also use a credit card to consolidate bills. A credit card with a low interest rate will usually offer you a lower interest than you were paying before on you bills, and the monthly payments can be very low. However with monthly payments so low and the ability to reuse the money after you have put it on your card this method takes a lot of self-control. If you take a long time to pay off your debt by making the minimum payment, you will have to pay a lot of extra money due to interest. And if you keep reusing the money you pay to the credit card company, you will not make progress towards erasing your debt.
With all of the options open to you it is not hard to find which type of loan is the best. The lowest interest rate or smallest monthly payment is not the only thing to consider. You also need to look at other advantages or disadvantages. If you do not have a lot of self-control, then using a credit card to consolidate bills can be a bad idea and only make things worse. If you have large upcoming expenses than the lower interest rates of a home equity loan are not as important as the line of credit that a home equity line of credit offers. The good news is that even if you feel it is impossible to keep your head above water there are lenders out there that can help.