Sources for Debt Consolidation Help
If you want to consolidate your debts to save money, simplify your payments, and pay off your debt faster, you can find several sources for debt consolidation help. The source that is best for you depends on your personal debt situation. There's no one-size-fits-all solution, but the following are the most common solutions to the most common debt problems.
Small-to-Medium Credit Card Debt If you owe a small to medium amount of credit card debt, less than $20,000 or so, and have enough income (or can cut expenses enough) to make larger payments, then a balance transfer debt consolidation may be best for you. Assuming your credit is good, look for a 0% interest balance transfer with a 12-month term. Transfer all your debt, then make large monthly payments to pay it off before the offer period ends. Once you're out of debt, keep your spending below your income so you don't get into debt again.
Large Credit Card Debt If you have a large enough credit card debt that you can't pay it off in one year and you own a home, then you can probably qualify for a home equity loan or cash-out refinance. The additional home loan interest will be tax-deductible and the interest rate will be much lower. Be careful of borrowing more than you can comfortably pay each month, though. If you miss your payments, you could lose your house.
If you don't own a home, but have good credit, you can apply for a personal loan or a debt consolidation loan. Although you won't be able to write off the interest, the rate should still be lower than credit card rates.
Medical Bill Debt If you were forced to accrue large medical bills, you can find a way out of that debt. Most states and some hospitals have financial aid programs for uninsured or underinsured patients. Contact your hospital's billing office for advice as soon as possible. You could also consider a home equity loan if the debt is small enough that you could pay it off over time.
Unfortunately, medical bills are one of the most common reasons people file for bankruptcy. If you can't find help anywhere else and simply can't pay those bills, contact a bankruptcy attorney to discuss your options.
Student Loan Debt If you have federal financial aid, consolidating your loans is one of the smartest financial moves you can make. Numerous lenders are happy to offer debt consolidation help to recent graduates, or even people who graduated several years ago. Contact your current lender for advice about consolidating. In most cases, you can lock-in a fixed rate and extend your payment terms for federal loans. It may not be possible to reduce your rate for private loans, but you can consolidate your payments and may receive other discounts.
You can also consider consolidating your student loan debt into your home equity loan, but there are a couple of reasons why this is a bad idea:
1. If you can't meet the payments, you could lose your home. While student loans are rarely forgiven, you can defer them or put them in forbearance until your situation improves. You can't do that if they're part of a home loan.
2. If you die with unpaid student loans, your loans are forgiven. Other types of loans are not forgiven at death, so your heirs will have to repay them with proceeds from your estate.
In general, mortgage debt is difficult to consolidate. You can only borrow the amount your house is currently worth and you shouldn't borrow more than 80% of the value to ensure you have a cash cushion if you run into trouble. If you have a high-rate home equity loan and a principal mortgage, you may be able to refinance them into a single mortgage, but only if the two loans combined don't exceed the value of your home.
Unfortunately, many borrowers have discovered that their homes are worth less than they paid and are unable to refinance. If this is your situation, selling your house may be the only way to get out of debt. Once you pay off any remaining balance, you can start over with a smaller house you can afford.
Whatever your debt situation, you can find a solution to it. If you don't see your situation here, contact a licensed credit counselor for help determining your options.