Debt consolidation is the process of rolling multiple debts into a single one. This option is generally used for high interest debts related to credit card bills. It works well if you are getting a lower interest rate with the consolidated new loan. You can use this option to reduce your debts. This consolidation will help you pay off your debts easily. Use this approach if you want to reorganize different bills with varying interest rates, due dates and payments into a single low interest loan.

Consolidating Your Debts

This process can be easier if you have a good credit rating. The first option is to transfer your debts into a credit card with 0% interest rate. It will allow you to pay the balance amount in full. Another more popular option is to consolidate your loans into a fixed rate loan. Use the money from the new loan to clear your debts and pay off the new loan in smaller installments over the loan term. You can borrow a home equity loan to clear the debts but it comes with the risk of losing your home if you fail to repay the new loan on time. The same risk is there if you use your retirement fund for this purpose.

Calculating Your Debt Consolidation

Should you consolidate your debts? Use the calculator that lets you check the amount you will have to pay after borrowing the new loan. Your consolidated loan will have a lower interest rate, making it possible to clear your debts with less difficulty. Use an online calculator that shows how much you will pay after you have consolidated your current loans and debts. Do not include your auto loan, student loan and mortgage in this calculation. Provide the amount of current loan balances, their interest rate, and their monthly payment amounts to calculate your new loan’s interest rate and monthly repayment amount.

When Should You Go for the Debt Consolidation?

This strategy works well when your debts are more than 40% of the gross income. You are still able to get 0% or lower interest rate on your credit card. You still have the cash flow to cover your debts and you have a good plan to avoid accumulating more debts again. These are the scenarios when consolidating all your debts into a single one makes sense.

Debt consolidation helps you overcome problems caused by multiple debts with high interest rates. Use the consolidation route to streamline your finances and overcome financial difficulties you are facing due to your debts. Take help of a professional consultant or agency that offers services in this sector. You will receive professional guidance and support services in consolidating your debts.