3 Types of debt consolidation.
Posted: July 6th, 2011 | Author: Joe | Filed under: Debt | Tags: Debt, debt consolidation, loan consolidation, loans, Tips | No Comments »What does debt consolidation mean? The term seems to have different uses among different people, but here are 3 different types of debt consolidation.
Debt consolidation loan
When most people talk about debt consolidation, they mean a debt consolidation loan. Find out more what a debt consolidation loan is here.
If, for example, you owe money on two credit cards and a loan, it may be better to take out one large loan, big enough to pay off all three debts at the same time. That would leave you with one payment to make every month instead of three.
Making one payment every month is just easier than arranging and budgeting for three separate payments – and you will only have to deal with one creditor.
You could even reduce the amount you pay every month if your loan has a longer repayment period. However, paying off your loan over a longer period could also increase how much you pay overall, due to interest.
Anyone interested in debt consolidation loans could try an online debt consolidation calculator. They help you to estimate your monthly repayments once you’ve entered a loan amount, interest rate and repayment period.
If your earnings change from month to month, or you’re not sure you’d be able to make regular repayments, you might find a different approach is more appropriate.
Balance Transfer
Another way to consolidate debts, which can work well for credit card debt, is to transfer multiple debts onto a 0% credit card. ‘Balance transfer’ cards don’t charge interest for a set period, after which time the card starts charging interest.
For that reason, a balance transfer could be ideal if you are able to clear the balance before the interest-free period ends. Otherwise, it may be possible to transfer the balance to another interest-free credit card. However, you’d normally be charged a transfer fee each time, something like 3%. For large balances, that could be quite expensive.
Other forms of debt consolidation
There are other ways of consolidating problem debts into one monthly payment without borrowing any more money. These include IVAs (Individual Voluntary Arrangements) and debt management plans.
Useful websites:
