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Chances are, if you're reading this article, you've got 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. You may have 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 Wisconsin.
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 various kinds of debt consolidation loans you can use.
Typically a secured debt consolidation loan will allow 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. More information on that can be found below.
How much of a loan you can get depends on the type of collateral you use and how much it's worth. These types of loans can also be repaid back over a long length 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 lets you combine your debt payments under one lump sum with one interest rate. However, unlike a secured debt consolidation loan, you're not required to have an asset or collateral to receive such a loan.
Because you aren't offering up any collateral for such a loan, it's a much riskier loan for debt consolidators, and your interest rate could be somewhat high. These loans are determined according to your credit history and score, and the benefit of an unsecured debt consolidation loan is that you aren't 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 faster than your mortgage in equal payments with a fixed interest rate.
Home equity loans are secured loans which have the same risks and rewards stated earlier.
There are also programs that allow you to consolidate all of your credit card debt into one single payment (and interest rate). If you have good credit, you could also be able to negotiate a lower interest rate on your credit cards, making it easier to repay.
Another option is to receive 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. While you're in your interest free rate, you should pay double payments so that you can pay off your debt faster. But keep in mind that the interest may very well be fairly high after the introductory period. 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 it comes to debt consolidation is to sign up for a debt management program. A credit counseling agency can help you set up a debt management plan so that you can pay off your debt in a timely fashion. This agency will also usually negotiate with your debtors so that they can reduce interest rates and fees.
Once the repayments are negotiated you will usually set up 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 creditor. This benefits you because you only have to make one payment, but it also gives creditors more assurance that your payments will be made on time every month.
Credit counseling agencies can also help you build a budget that's easy for you to follow and help alleviate some of the stress your debt has been causing you. As long as you stick to the plan a debt management program will save you money, get rid of debt sooner and have a positive effect on your credit score.
Debt consolidation needn't be scary, and there are many options which will help you get out of debt faster. Research all your options and then choose the one that works best for you and your financial situation.