Debt Consolidation Strategies Explained

If you're wondering why debt consolidation is right for you, the answer depends on the type of consolidation strategy you choose. A professional debt consolidation service is just one of several options you have when consolidating debt. On this page, we'll explore the most popular approaches to debt consolidation and address their pros and cons.

Debt Consolidation Companies

The first option and the approach we offer on our site is the use of a professional debt consolidation service. Debt consolidation services specialize in helping clients with high-interest, unsecured debts pay off their obligations quickly and inexpensively. Consolidation services have experience dealing with credit card companies and can usually secure more manageable rates for their clients. If you choose to consolidate with a professional service, all of your debts will be bundled into one monthly payment. Your consolidation service will then be the only creditor you have to pay each month. Once the service receives your payment, they will divvy the money up among your individual creditors.

The main reason why debt consolidation services are superior to other forms of consolidation is because they focus on improving interest rates, which no other consolidation strategy does. Other consolidation approaches will help you pay off your debt, but they cannot help make your interest rates and payments more manageable. A professional consolidation service will help you do both, so you can pay off your debt as fast as possible.

Consolidation Loans

A debt consolidation loan is a loan you obtain from your bank or credit union in order to repay your existing debts. Ideally, this new loan will have better interest rates than your old debts, thus enabling you to pay off your debt more affordably. Consolidation loans usually come in the form of a personal loan, which may be secured or unsecured, or a home equity debt consolidation loan. A home equity debt consolidation loan converts the equity in your home into cash to help you pay off your other debts. One reason why debt consolidation loans may work for you is that they can offer very low interest rates. On the other hand, when you use a consolidation loan, you must take on more debt in order to pay off other debts. You also risk losing valuable assets like your home if you fail to repay.

Credit Card Balance Transfers

Transferring the balances of your high-interest cards to a credit card with a more reasonable interest rate is another way to consolidate. A credit card balance transfer usually comes with a very low initial interest rate that rises after six months or a year. For this reason, balance transfers are only a temporary debt consolidation solution. Additionally, balance transfers tend to come with very high fees that may end up costing you more than what you save on interest.