The word credit generally means the trust, which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately. S/he instead promises either to repay or return those resources at a later date. On the other hand, consolidation occurs when someone pays off several smaller loans with one larger loan. Basically, you are consolidating all of your payments into one larger payment. There are many ways to get out of debt. What you choose will depend on your financial situation, and debt consolidation is one of them. Let’s go through some of the best ways to consolidate debt.
Consolidation with a personal loan
A personal loan is a loan issued by a bank or credit union, whereby you borrow a specific sum of money, and pay it back in installments over a well-defined repayment term, such as 12 months, 24 months, 36 months or 60 months. If you are looking for a long-term solution to such loans, consider online installment loans. One benefit of a personal loan is that it doesn’t require collateral, meaning you don’t have to put your house, car, or other assets on the line to secure the loan. Typically, you need a good credit score to obtain these loans, especially if you want a reasonable interest rate.
If you’re able to secure a low-rate credit card that offers an introductory low interest rate that lets you tackle the principal, transferring all your debt into a single credit card is the way to go. There normally is a low transfer fee, which can be anywhere between two and four percent of the balance you transfer.
Borrow from life insurance and retirement plans
With a retirement account loan, you take money from the savings you’ve already put away for retirement, and use it to pay your debts. Then, you repay what you received from the retirement plan, plus interest to yourself. You can borrow up to the cash value of the policy and may not need to repay the borrowed sum.
Consolidation through a Payday Loans
Payday loans are small loans you can use when you are temporarily out of money. Most often, payday loans are short-term loans (two weeks or so) for a modest amount of money. These are however expensive to borrow especially if you are not able to pay them on time.
This involves having a debt management plan. This plan requires you to cease using your credit cards, live on a budget and pay off your debt in 3-5 years. It entails working with creditors to get better terms, including lower interest rates. You make one monthly payment to the company, which then distributes those funds to your creditors.
The best way to consolidate credit varies by individual, depending on your financial circumstances and preferences. You can either chose to pay off smaller balances first and then add those payments to the bigger bills until they are paid off, or transfer balances to one credit card loan.