Debt Consolidation: Is It the Best for You?
Debt consolidation can be an interesting option for anyone who is struggling to cover multiple monthly payments.
“Debt consolidation is basically combining multiple debts to make a single monthly payment,” says Daniel Lawler, a team leader at a Regions Bank branch.
Ideally, with the consolidated process you would reduce your monthly payments and what you pay in interest. “If you are having a hard time paying your bills, trying to cover too much, or don’t have the necessary cash flow, it may be a good time to consider consolidating your debts,” says Lawler.
Where to start
If you are considering consolidating your debts, Lawler recommends first putting together all the bills you have to pay and determining the total amount owed and the various interest rates. Then you can use the Regions Debt Consolidation Calculator to estimate how much you could reduce your monthly payments.
Collect tax returns from the past two years (as well as your home insurance information if you are considering applying for a home equity loan) and talk to a financial professional about your options.
If you can’t take advantage of your home equity, many credit cards have zero percent rates for balance transfers; that is, you could take out a new credit card, transfer all your other card balances to that card, and not pay interest on the debt during the introductory promotional period.
Before choosing this path make sure you can cancel all of your transferred balances before the promotional period ends. After this period, the interest rate on the transferred balances will most likely increase significantly and be higher than the rates that were before making the transfer. When reviewing this option, also remember to find out if balance transfers are subject to a balance transfer fee and if other fees or restrictions apply.
Another option is to take out a personal loan secured or unsecured . The main difference between a secured loan and an unsecured loan is precisely the requirement of a guarantee. The collateral, like a vehicle or home you own, can be used as a backup to take out a loan and get a lower rate than with an unsecured loan, where a collateral is not required. A disadvantage of consolidating secured debt is that you could risk losing the good you put as collateral if you are unable to repay your loan.