5 Tips to consolidate debt

Consolidating debt means bringing together different loans and debts into 1 place. Debt consolidation may involve a deal to reduce the total amount of debt or it may just involve moving debt to the lowest interest rate. Debt consolidation is highly desirable. Many people waste significant amounts of money because they keep debt at a higher interest rate than necessary.

1. Find Lowest Interest rate.

The main advantage of debt consolidation is to find the lowest interest paying debt plan. This is unlikely to be a credit card which may charge 18-20%. It is likely to be either your mortgage or a personal loan.

2. Use Value of Your House.

If you own a house, it will be easier to consolidate debt, because the debt can be secured against the value of your house. This can be either as your mortgage or a secured personal loan. Adding to your mortgage will offer the lowest interest. A mortgage also spreads the repayments over the longest possible period. However, it will mean your home is at increased risk of repossession.

3. Debt Settlement.

Debt settlement involves consolidating debt, but, also reducing the value of your total debt. A debt settlement company agrees to clear your debts but negotiates a reduction in the value. Your debts are cleared as “settled in full” rather than “paid in full” More detail: Debt settlement

4. Target Cause of Debt.

There is only so much debt consolidation can do. It is good to move debt to the lowest interest rates. But, it is better to reduce the total amount of debt. Look upon debt consolidation as chance to make a new start. Use the reduced interest payments for paying off more than the minimum. Look at: How to reduce debt, how to reduce overspending.

5. Don’t Close All Credit Cards

If you move debt away from a credit card, it is best to keep the account open. After 2 years of inactivity, my Virgin Credit card offered a nine month 0% balance transfer option. This is very useful.

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