Credit card debt can pile up. For some of us, it can quickly reach an unmanageable point. If the amount you charge on your cards is more than you are paying, your balances can become enormous before you know it. If your cards carry high interest, too, it can be extremely hard to dig yourself of out the hole.
Your best chance for getting out of debt is to make an aggressive plan and stick to it.
One way to work the problem is to to find a way to keep your interest rates low, in order to keep your monthly payments low. Unfortunately, if your debt level keeps rising or if you miss a single payment, it will be very hard to find a low interest bill consolidation loan.
One solution to managing out-of-control credit cards and other debts is through low-interest bill consolidation loans. If you qualify, you can use a low-interest bill consolidation loan to pay off high interest credit cards or other loans. Depending on how much debt you have and the size of the debt consolidation loan you qualify for, you may need only one loan to consolidate all your debt.
However, a low interest debt consolidation loan can only do so much. It doesn't reduce your debt. It merely resets your interest rate so you can start pay it off faster. To get out of debt, you need to establish a plan of attack. Before you consolidate your debt in a bill consolidation loan you need to:
A secured bill consolidation loan is one where you provide collateral for the loan. Collateral is anything the lender can redeem if you default on your payments, such as a home, vehicle, or in the case of a business, inventory or equipment.
With collateral, you are more likely to get low interest bill consolidation loans because you are putting up something the lender can repossess, in case you do get behind on your payments.
An unsecured bill consolidation loan is one where you provide no collateral. This often results in a higher interest rate. With an unsecured loan, lenders tend to limit the size of the loan, to limit their risk. Banks and Credit Unions make unsecured loans between $1,000 and $100,000. Peer-to-peer lenders lend up to $35,000. Most unsecured loans require strong credit.are difficult to obtain in today's market, requiring strong income and credit.
If you can find an unsecured loan with a lower rate than your current debts, it can be an effective way to improve your financial situation. At times, it makes sense to take an unsecured loan even at a high rate. If you lower your monthly payment to a level you can afford, the benefit of the lower monthly payment could outweigh the high interest rate, particularly if it prevents you from defaulting on your payments.
Be sure to shop around to find the best loan available.
Another type of unsecured loan option to consider, if your credit is good, is a balance transfer offer. Balance transfers come with a low “teaser” rate that expires. Make sure you know when your rate adjusts and how high it can go and never miss a payment on a card you have used to transfer balances to, or you will find all your debt on the card at a penalty interest rate that can exceed 29.99%.
If you own a home, consider a cash-out refinance loan to get a lower interest rate mortgage AND pay off existing debt. Depending on how much debt you consolidate, this might increase your mortgage payments, though it could lower your monthly costs for your mortgage and debt combined.
Adding to your mortgage balance puts your home at greater risk. If you don't make your new, higher payment, you risk foreclosure. Many Americans still owe more on their homes than they are worth. Others have recovered some equity but not necessarily enough to do a cash-out refinance loan.
If you are a homeowner with some equity in your property, a home equity line of credit (HELOC) might be the right solution to consolidate your bills. However, this can also put your home in danger. In order to figure out if a HELOC is a good way to consolidate debt, start by figuring out how much equity you have in your home. Subtract your remaining mortgage balance from the current market value of your home. Keep in mind that the maximum combined loan-to-value (CLTV) for your first and second mortgages is 80-85%, in most markets.
If you look for low-interest bill consolidation loans, weigh all your options carefully. Learn about each option and then figure out which works best for you.