If you have multiple debts and are having difficulty managing them, taking a look into debt consolidation can help you to see what options you may have. It can be a helpful strategy to reduce your interest rate for high-interest debt, and it can help to simplify your finances by having one payment.
If you do decide to move forward with consolidating your debt, one of the most important steps for you is to have an overall plan for your money each month to help you avoid adding debt in the future. I know it can feel overwhelming, but fully understanding your income and expenses and creating a budget for your money that is aligned with what is important to you is your personal finance foundation.
Here are some debt consolidation options:
Personal loans: You can take out a personal loan from a bank, credit union or other financial institution and use the funds to pay off your current debts if you are able to meet the criteria to qualify. The benefit of a personal loan is that it can make budgeting easier because they usually have a fixed interest rate and a set repayment term.
Balance transfer credit cards: You may be able to transfer your debt to a credit card through a balance transfer promotion with a low, or even zero interest rate. Be sure to read the fine print as the promotional rates are typically only for a set period of time and you will likely be charged a balance transfer fee.
Debt management programs: Non-profit credit counselling agencies can help you create a debt management plan. These plans consolidate your debts into a single payment each month. This process has the credit counselling agency working with your creditors to negotiate your interest rates and payments so they are more manageable for you. Find a Credit Counsellor to help you explore this option.
Debt consolidation loans: There are lenders specializing in debt consolidation loans, these loans are designed to help you pay off your debts by consolidating them into a single loan with a lower interest rate and a longer repayment term. If you decide to look into this option, be sure to carefully review the fees and interest because there are some sneaky lenders out there who will try and take advantage of you.
Home equity loans or lines of credit: If you are a homeowner, you may be able to use the equity you have in your home to secure a loan or line of credit to consolidate your debts. Home equity loans typically have lower interest rates than other types of loans because they are secured by your property. The interest rates are typically variable which can mean that your payments would change as rates change. Lines of credit can also make spending more tempting because as you pay them down you are able to borrow the money again.
Like with many other personal finance questions, there is no one-size-fits-all answer. You need to look into the different options and have a clear picture of your debt, and what you are looking to achieve.