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With any consolidation plan, you combine all of your unsecured debts into one monthly payment. Unsecured debts include credit cards, retail store cards, medical bills and even some loans.,If you have good credit, you may also be able to qualify for an unsecured personal debt consolidation loan. This is where you take out a low-interest loan then use the money to pay off all of your other debts.
That leaves the loan payment as the only debt you have to repay.,Looking for relief from high interest rate credit card debt?

Credit card debt consolidation could be the answer you need. Credit card debt has a way of causing problems for your finances. Other debts like loans have fixed payments that you can plan around in your budget.

But with credit cards, the monthly bills on credit cards vary based on how much you owe.,Credit card debt consolidation combines multiple debts into one payment at the lowest interest rate possible. There are several ways to do this.
There are also ways to consolidate other types of debt, such as student loan debt consolidation. But you generally can only consolidate similar types of debt.

So, if you have both credit cards and student loan to repay, you may need two solutions to pay off everything you owe.,To use this solution, you take out an unsecured personal loan (a loan without collateral).
You use the money you receive from the loan to pay off your credit cards and other debts. Once executed, the only debt you have to pay off is the loan, itself. This consolidation option offers the benefit of fixed monthly payments.,The costs to use this option are also relatively low, you usually only need to pay loan origination fees, although some lenders may waive them.

Other than that, the only cost is the applied interest charges. With good credit, you can usually qualify for a low rate, particularly compared to the relatively high rates on credit cards.,Using debt consolidation loans »,This is a secured version of the loan described above.
If you can’t qualify for the low interest you need without collateral, you may be able borrow against the equity in your home. This allows you to qualify for lower interest rates, even with a weaker credit score. If you take out a home equity loan, you enjoy fixed monthly payments, just like you do with unsecured loans.,Theres also an open-end credit line version of this loan called a Home Equity Line of Credit (HELOC).
In this case, you qualify for a credit limit based on your equity that you can withdraw money from as needed.

You pay interest-only for 10 years, then start paying principal plus interest. As a result, your payments increase significantly after 10 years.,Still, if you plan on using a home equity loan or HELOC for other purposes, such as a home renovation project, you can use some of the funds to pay off a few credit card balances. But always consider your options carefully and understand the risks before you decide to touch the equity you have built up in your biggest asset.,You have 5 credit cards, 2 store cards and total credit card debt of $45,000.
Your FICO credit score is 550. You purchased your home last year using an FHA loan program. Which solution should you use?,b.

Unsecured debt consolidation loan,c. Home equity loan,Tip: Since your home was purchased with an FHA loan, you probably dont have equity available.
A 550 credit score means you cant use the the other two options.,This is why consolidation often offers the benefit of getting you out of debt faster even though you pay less each month. This is most commonly seen with debt consolidation loans and debt management programs.

Statistics show that the average debt management program client sees their total monthly payments reduced by up to 30-50%.,This means you must have the discipline to avoid making new charges until you pay off the consolidated debt. You must set a budget that covers all your daily expenses and gives you extra cash flow to cover emergency expenses.
That way, you can avoid new charges that just run up your balances again.,The biggest risk of consolidation is only faced when you use a home equity loan or HELOC.

You’re taking unsecured debt and securing it as your borrow against your home equity. If you fall behind on credit card payments, they can threaten as much as they like, but a creditor can’t take your home.online payday loans houston
The worst they can do is sue you in civil court. The only way youd be at risk of losing your home to cover debt repayment is if you file for Chapter 7 bankruptcy.,On the other hand, using home equity means your home is at risk of foreclosure if you fall behind.

If you cant make payments on a home equity loan or HELOC, the lender can start a foreclosure action. So, while your credit card bills may be paid off, now you need to worry about losing your home.,A: Yes. If you consolidate debt with a personal loan and still struggle to make your payments, reconsolidate. You can roll an existing debt consolidation loan into a new consolidation loan with additional credit cards.

This can be beneficial if:,Additionally, you can include debt consolidation loans into a debt management program. If you see that you’re not paying down debt fast enough or you run up new balances, this may be the best choice. This is often necessary if you don’t set a budget that helps you avoid making new charges after you consolidate.,A: Yes.
There are two options for borrowing that are considered second mortgages – a home equity loan and HELOC.

A second mortgage means you take out an additional loan against your home, in addition to your primary mortgage. You essentially owe two mortgages on the home.,Whether you use a home equity loan or Home Equity Line of Credit, you must have equity available.
Otherwise, there is no value in the asset (your home) to borrow against. In general, you can borrow up to 80% equity. If your home is worth $200,000 and you owe $100,000 on your first mortgage, you can borrow up to $80,000.,A: Yes.
A cash-out refinance is where you take out a new mortgage on your home for an amount that’s higher than the balance on your existing mortgage.

You receive the difference in cash and can use the money to pay off your credit cards.,You can pay off a student loan with a balance transfer credit card, but it usually won’t help you.
The interest rate on the credit card will be much higher once the 0% APR period ends. So, you can increase your rate instead of decreasing it.,The same is true of a credit card debt consolidation loan.

The government offers low interest rates on student loans. For instance, the rates on Direct Loans for undergraduates for 2017-2018 is just 4.45%.
Even private lenders tend to offer lower rates on student loan products.,This means you usually can’t benefit from interest rate reduction if you try and combine the two types of debt together. A lender won’t let you consolidate credit card debt at a student loan rate.

If you go the other way, you increase the rate on your student loans, making them more expensive to pay off.,There’s also an issue if you end up in bankruptcy court. Credit card debt can be discharged through bankruptcy.
Student loans cannot, even if they are from private lenders.

So, what happens if you put the two debts together and then filed for bankruptcy? The court may decide that the consolidated debt cannot be discharged. As a result, you’d still owe the full amount.,You cannot include student loans in a debt management program.,A: This really depends heavily on the situation. In general, you could only consolidate a spouse’s credit card if they cosign the consolidation solution.
So, if you get a balance transfer credit card or consolidation loan together, you can pay of each partner’s debt.,You usually can’t pay off someone else’s debt if you apply individually.

For instance, when you apply for a debt consolidation loan, the lender will require a list of the accounts and current balances you wish to pay off. They won’t approve paying off someone else’s balance.,However, there is a slight loophole. If you receive the funds from a consolidation loan, HELOC or cash-out refinance, you can use them however you want.
So, for example, if you have money left over once you pay off your debts, there’s nothing stopping you from paying off your spouse’s balance.,A: You can, but you may not want to do so. Like student loans, auto loans tend to have much lower interest rates than credit cards.

The debt is secured using your vehicle as collateral.
That means the interest rate is much lower than rates for unsecured debt. This means that trying to consolidate an auto loan with credit card debt would usually increase the rate on the auto loan.,Of course, there can be reasons to do it that a specific to your situation.

If you applied for a car loan with bad credit, you may have a high interest rate on your auto loan.
In this case, consolidation now that you have a good credit score might be beneficial. Consolidation could also be a way to eliminate a bill if you don’t have much left to repay on the auto loan.,A: If you use do-it-yourself consolidation solutions like balance transfers or consolidation loans, then you pay off your existing debts. You effectively take on new debt to pay off your existing debts.
As a result, the balances on your existing debts instantly drop to zero.

The accounts are still open, active and in good standing. That means you can still use them to make charges.
Just be careful not to run up your balances again!,Nonprofit credit counseling agencies are required to provide a free debt and budget evaluation when you first contact them.

They must review all options available and help you identify the right one to use in your situation. So, if you’d be better off using a debt consolidation loan, they’ll tell you that. A for-profit agency won’t.
Thus, you should contact a nonprofit consumer credit counselor to get unbiased advice.,A: There are several things to consider when looking for the best loan to consolidate credit card debt:,Remember to only ask for quotes! If you go through the formal application process with any lender, you authorize a credit check.

You only want one credit check when you consolidate.
If you authorize multiple checks by applying for more than one loan, you can hurt your credit score.,From the pros and cons of using credit over cash to the right way to balance rewards against added interest, we show you the ropes so you can master your credit cards.

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