Debt Consolidation

Well by consolidating debt into one "debt consolidation loan", with one monthly payment and a regular monthly payment plan, you could see the light at the end of the tunnel.

When you have a number of loans you wish to consolidate in to one "debt consolidation loan" it may not be easy. You need to shop around for a lender who will be prepared to take on ALL your loans at a good rate of interest. Be very careful on your selection as you could end up deeper in debt.

The aim of consolidating debt is to reduce your monthly outgoings, to do this there are two things to consider.

1. Shop around for the lowest interest rate possible
2. Have a time scale in which you want to clear your debts i.e.  5 -10 yrs

The best ways for debt consolidation

Using Credit Cards

If you have a good credit rating the good news about this method is the interest rates are sometimes lower than a consolidation loan. And as Credit card companies don't ask for collateral, your home is not at risk. It's always worth phoning your current card issuer to ask what is the best rate they can offer you if you transfer a balance from another card over to theirs. There are good deals around with no transfer fees, if you can't negotiate a low rate with your current issuer, try shopping for a new card.

However be careful, if you make too many applications for Credit cards in a short period of time it could reflect on your credit rating.

When you have completed the consolidation, make regular payments and plan to be out of debt in 3 - 5 years.

Home Equity Loans

A home Equity Loan is borrowing money against the value of your home, minus any outstanding mortgages.

The types of loans are:

1. A Home equity Loan, which is a fixed amount for a fixed period of time, and may be at a fixed interest rate.
2. A "Home Equity Line of Credit" which is when you borrow up to an agreed approved credit limit, Interest rates will usually vary, and you can borrow if you still have money again.

These types of loans usually attract good rates of interest, and the interest is sometimes tax deductible. Again shop around as there are lenders who will offer low or even no closing costs for these types of loans. But remember if you don't make the payments you could lose your home.

Remortgaging

Remortgaging your home, using the equity in your home is another way of taking money out and settling some bills. By refinancing in this way you will be able to borrow money at a significantly lower interest rate. You could stop paying high interest payments, and even be better off each month by paying a lower interest rate.

Another option is to consider an interest only loan. This will reduce your monthly payments and giving you freed up money to enable you to pay off some of the high interest debt or building a retirement fund.

Always be sure of what you are doing when remortgaging, use the freed up money to have a saving plan, or pay off all your dept before you think of a holiday!

Traditional Debt Consolidation Loans

When you take out a debt consolidation loan, its is unsecured personal loan and therefore the lenders do not ask for security again the Loan, as the title suggests the lender is giving the loan personally to you. These types of loans are usually more expensive and not so easy to obtain if you are heavy in debt.

If you find a lender who can offers you the right interest rate, it could be a great way to save money and get out of dept. Remember to check current Bank rates. However, if you are not able to get the right deal, because the Interest rates or the repayment terms are over 10-15 years consider Credit Counselling.

By seeking help from a credit counselling agency they may be able to help you get out of debt. They can't consolidate all your debt but will work out a payment plan with you and your lenders negotiating lower interest rates and fees. You will than make one monthly payment to the Credit Counselling agency that will than pay your lenders.

Using this method normally won't hurt your credit rating, and if you keep to the payment plan you could be out of debt within 3 - 6 years. Choose the Credit Agency carefully, if they pay your bills late than you are still responsible to the lenders and Late payment fees may be incurred.

Speedy Repayment

There is another alternative which is mathematical. Decide how much you can afford to commit to for paying off your debts; the first payment should be on the highest Interest loan, whilst paying the minimum on the rest which have lower interest rate.

It may be that you don't have to consolidate to be debt free; if you plan you may be able to do it on your own.

If you are going to make this work and get out of debt make it work for you don't make the mistakes most people make when it comes to consolidation:

a) Not having a plan once they have consolidated.
b) Not doing anything, waiting for a solution to come along.