Consolidating your unsecured debt
It is also not a fit if you do not have a consistent source of income that more than covers your monthly payment.
“It can be really overwhelming when you have five credit cards to pay and you don’t even know where to start.This makes the most sense when the personal loan has a lower interest rate than you’ve got across your existing debts.For individuals with debt on several credit cards, it can make sense to transfer the balances over to the card with the lowest interest rate, creating one payment and lowering interest overall.I’ll sometimes float the idea of debt consolidation so they only have one bill to pay or so they can have a lower interest rate.” There are numerous debt consolidation methods to consider, some of which work better in different situations.A word to the wise, though: Debt consolidation isn’t for everyone struggling with debt.Then you can focus on repaying that personal loan, which requires just one monthly payment and, ideally, has a lower interest rate than what you were paying across multiple debts (it may not have a lower rate, but it’s in your best interest to find the lowest one you can).
The specifics of how debt consolidation works will vary by the type of debt you have and the method you choose.
Determining which method will benefit you the most will involve some homework and some calculations … can take many forms, including a personal loan, a balance-transfer credit card, a home equity line of credit (HELOC) and a debt management plan, among others.
(We’ll get into the details of those options later on.) No matter what strategy suits you best, the idea is the same: Lump together all or most of your debts into a single payment as a way to save money, simplify your finances … For example, if you have multiple high-interest credit card debts and outstanding medical bills, you may want to take out a personal loan to repay those debts.
Some people prefer a DIY debt management plan, while others benefit from simplified singular payment of a debt consolidation loan.
“Debt consolidation really depends on the person and the type of debt,” Germano said.
A home equity loan does not replace the existing mortgage as a cash-out refinance does, but it is another loan in addition to the existing mortgage.