Once you have determined that debt credit card debt consolidation is right for you, it is time to explore the options for debt consolidation.  These options can vary depending upon your credit score, security and other personal factors.

Let’s take a brief look at your debt consolidation options.

Secured Debt Consolidation Loans

If you own your own home, and you have equity in your property, then you can take out a new mortgage or a second mortgage (these are called home equity loans) with a new lender consolidate debt at a low interest rate.

Even in today’s economy, the process is quick and straight forward. Howeve, beware that these loans are not instant loans.  You will have to obtain an appraisal and arrange for a closing through a title company.  At closing you get a check for the amount of money in excess of that needed to pay off the first mortgage.  You then use the money to pay off the various creditors.  Because the loan is secured with your residence or other real estate, the loan is called a secured loan.  Therefore, the risk is great that you will lose your home if you do not make the monthly payments in a timely fashion.

Unsecured Debt Consolidation Loans

If secured loans are “secured” by property, then “unsecured” loans are secured by nothing more than your promise to repay the lender.  So, basically the lender will loans you money without the means to repossess any property if you default on your payments.  As a result, the interest rates and fees are higher on unsecured debt consolidation loan.  This is to compensate the lender for the risk factor involved.

There are two basic types of unsecured debt consolidation loans.  Let’s take a look at each.

Credit Card Balance Transfers. If you have a good credit score, you will be eligible for credit card balance transfer offers to consolidate other credit cards debts at a low (or even zero percent) interest rate.  The major drawbacks to this type of transfer is that the low interest period is usually pretty short (6 to 12 months) and the transfers carry a balance transfer fee of 3% to 4%.  If you cannot pay off the balance within the repayment period, you have to roll the balance over onto another card and pay another balance transfer fee.  If you are unable to find another offer, you will be stuck with the regular interest rate on the card after the transfer period expires.

Bank Debt Consolidation Loan. Again, if you have good credit, you can apply to your local bank for a debt consolidation loan.  The bank will typically charge a higher interest rate on the loan because it is not secured by property.  But, the process will be straightforward and the term will be longer, thereby decreasing the monthly payments.  You will not have to roll the loan over every six to twelve months either.  So, this option, while carrying higher interest, is also more user friendly.  These are cash loans so the bank will deposit the loan proceeds in your account and you will have to write a check to each creditor.

Bad Credit Loans For Debt Consolidation

If you have a bad credit score, you are going to have to explore the possibility of a bad credit loan for debt consolidation.  Note that with the recent FICO 08 changes, occasional missed or late payments do not adversely affect your credit score as badly as they once did.  However, defaults and bankruptcies still have the same effect.

Just as it is for bad credit personal loans, the interest rate and fees are much higher for loan consolidation if you have bad credit.  If at all possible, post some sort of collateral to try to entice lenders to make consolidation loans at lower interest rates.  If you must take out an unsecured debt consolidation loan, you need to carefully weigh the interest and other costs against the need to consolidate debt and act accordingly.

Beware Of Hidden Fees And Other Costs

There can be other costs involved in securing a debt loan to consolidate credit card debt.  These include arrangement fees and redemption penalties on your existing credit agreements.  Investigate these possibilities before you consolidate debt into a new loan.  Also, look out for companies that advertise ‘no added fees’.  Sometimes their interest rates are much higher.

The best way of finding a lender is to do your homework. Check out one of the many comparison sites on the internet to compare different debt consolidation companies.

After all, it costs nothing to shop around.

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The net result is that the payments are lower and more of each payment goes to principal reductions.

This form of debt management has been used by many borrowers to get debt help with credit consolidation.  Let’s take a look at a few of the factors to consider when contemplating a debit consolidation loan.

Important Debt Consolidation Loan Factors

There are three factors that affect the terms of debt consolidation loans.

These are the payment term, the interest rate and the monthly payment.  As each increases or decreases, it affects the other two factors involved with respect to the loan consolidation offer.

• If you want a small payment and low interest, you have to consolidate loans over a longer repayment term.
• If you want a short payment term, then you have to find a low interest rate and/or accept a higher monthly payment.
• If you can only find loans with high interest rates then you have to accept a longer repayment term and/or a high monthly payment .

Repayment Term. The amount of money borrowed will be the determining factor when calculating the repayment term.  If you have a large number of debts or high balances, then you will need a larger credit card consolidation loan to payoff and combine the multiple debts into one debt.  If you only have a few small debts then, obviously, the term of the credit card debt consolidation loan can be shorter with the same monthly payment.

Interest Rate. You need to take a good look at the interest rate on the debt consolidation loan.  The debt consolidator will offer a low monthly payment over a longer repayment term in order to mask the effect of high interest.  In fact, the high interest rate is the very reason the loan has to have such a long repayment term.  Otherwise, the monthly payments would be quite large.

Monthly Payment. If you want lower monthly payments, you are going to have to accept a longer repayment term and look for debt solutions that offer the lowest interest rate.  If you have a mediocre or bad credit score, the interest rate might be high and there will be little, if anything, that you can do about it.  So, the only way to get a lower monthly payment is to extend the term of the loan.

As you can see, you have to weigh each factor carefully to find the best debt consolidation loans for your needs.

Is A Debt Consolidation Loan The Best Option?

Owing money to a variety of different lenders can cause you to miss payments of collapse under the burden of the total payments required each month.

The biggest advantage when you consolidate debt is that you will pay one note to one lender and be able to calculate exactly when you will get out of debt.  These type of debt solutions allow you to regain control over your finances and ultimately get out of debt.

That being said, it is ultimately up to you to avoid falling back into the trap of credit card debt.

Learn from your mistakes or you will doomed to repeat them.

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