Many people are coming into the new year carrying some sort of debt burden. The debt can be from student loans, relying heavily on credit cards, a mortgage, car, or just the cost of holiday expenses. Whatever the source, it’s time to find the best way to handle and pay down that debt.
Which debt repayment method will be the one for you? It depends on your particular financial situation and the types of debt you have.
The first thing you should do is to take a look at your current financial situation. This will help you to identify what you earn, what you spend, and what you owe. List your income, including any additional money that you might receive from a part time job or even from a side business. Next on the list comes what’s known as fixed expenses. These are the payments that remain the same from month to month, like rent, a car loan, or mortgage payment. Variable expenses follow after. These are the expenses that can fluctuate from each week or each month, like groceries, gas, and entertainment.
Once you have this information, you can start setting a budget to see where your finances stand. If the total amount of the fixed expenses you have is greater than your income, or if you have expenses that carry a high interest rate (such as late payments on a credit card), you may be able to reduce your debt by by taking out a debt consolidation loan.
When you take out a loan to consolidate debt, there are two options: one is to get a secured debt consolidation loan to pay down debts, and the other is to obtain an unsecured debt consolidation loan. The major difference between the two is that a secured loan requires some form of collateral, like a home or car that you own. An unsecured loan doesn’t put your assets at risk, although the interest rates tend to be higher than a secured loan.
How do you know if debt consolidation is right for you? The following questions can help you figure out if taking out a loan to consolidate debt can help you.
- Are you having trouble making your monthly payments? If you’re at risk of being late, or have already become late on a few payments, debt consolation can help you to improve your cash flow by combining your existing debts into a single loan.
- How many monthly payments do you have? If you have multiple credit cards and multiple payments, you may find yourself in a position where you’re paying more money each month due to late fees and higher interest rates. Taking out a loan to consolidate debt helps simplify your finances, creating one single monthly payment.
- Do your existing loans have variable interest rates? While a debt consolation loan generally has a higher interest rate, it’s a fixed rate. This means that the interest rate won’t change over the period of the loan, making it easier for you to budget your money as you know what your single monthly loan payment will be.
Taking out a loan to consolidate debt isn’t your only option, but depending on your financial situation, you may find that it’s a better option than using a debt relief service (like a debt management program, credit counseling, or debt settlement), or as a last resort, bankruptcy. How can you be sure that a debt consolidation loan is right for you? It comes down to how much you owe and how disciplined you are once you’re able to pay down your debt. Debt consolidation is a way in which many people just like you have taken back control over their finances.