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Chances are, if you are reading this article, that you have some serious debt accumulating. It can be extremely daunting when the bills keep piling up, and you might not know where to turn to for help. Maybe you've heard a bit about debt consolidation but aren't too sure on how it may help you climb your way out from the hole you're in.
Read below to learn about different ways you can use debt consolidation in Virginia.
One quite common types of debt consolidation is a consolidation loan, which enables you to merge all your debts under one single payment. There's a couple of different types of debt consolidation loans you can use.
Typically a secured debt consolidation loan allows you to lump all of your debt payments under a single bill at a lower rate than the individual rates you may have been getting. However, in order to secure a lower rate with a secured debt consolidation loan, you must have some type of asset to use as collateral, such as your home. Additional specifics on that can be found below.
How much of a loan you can get depends on the type of collateral you have and how much it's worth. These sorts of loans can be repaid back over a long period of time, anywhere from 5 to 30 years, and they can often improve your credit score if managed properly. If not, you risk defaulting on the loan and losing the asset used as collateral.
Much like a secured debt consolidation loan, an unsecured debt consolidation loan gives you the ability to combine your debt payments under one lump sum with one interest rate. However, unlike a secured debt consolidation loan, you will not need an asset or collateral to receive such a loan.
Because you are not offering up any collateral for such a loan, it's a much riskier loan for debt consolidators, and your rate of interest could be somewhat high. These loans are determined based on your credit history and score, and the upside to an unsecured debt consolidation loan is that you are not in jeopardy of losing your asset should you default.
A home equity loan permits you to borrow money, using your home as collateral. This home equity loan is essentially a second mortgage that allows you to turn the equity on your home (the money your property is worth minus the amount you owe on it) into cash to be used at your discretion, such as debt consolidation. These loans are set up to be repaid quicker than your mortgage in equal payments with a fixed rate of interest.
Home equity loans are secured loans which have the same risks and rewards already mentioned.
There are also programs that allow you to consolidate all of your credit card debt into one single payment (and interest rate). If you've got good credit, you might be able to negotiate a lower interest rate on your credit cards, making it easier to pay off.
Another option is to qualify for a new credit card at a low introductory interest rate (possibly as low as 0%) and transfer your credit card balance to your new card. When you are in your interest free rate, you should pay double payments in order to pay off your debt faster. But keep in mind that the interest is likely to be fairly high after the promotional period. You should consider this way of consolidating debt only if you know you can pay off the debt while the introductory rate is in effect.
Another option when considering debt consolidation is to enroll in a debt management program. A credit counseling agency will help you set up a debt management plan so that you can pay off your debt as quickly as possible. This agency will also usually negotiate with your debtors so that they can reduce interest rates and fees.
Once the repayments have been negotiated you will usually create an account with the credit counseling agency and pay one lump sum a month into the account. The credit counseling agency will then disburse the repayments out to each individual creditor. This benefits you because you just need to make one payment, and additionally it gives creditors more assurance that your payments will be made on time each month.
Credit counseling agencies can also help you build a budget that's simple for you to follow and help alleviate some of the stress your debt has been causing you. Providing you stick to the plan a debt management program will save you money, get rid of debt sooner and have a positive impact on your credit score.
Debt consolidation doesn't have to be scary, and there are many options that can help you get out of debt faster. Research all your options and then pick the one that works best for you and your financial situation.