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11 Nov, 2021

What is the Best Way to Consolidate Debt?

Posted by: Consumer Law Partners

When credit card debt gets out of control, finding the right way to consolidate debt can save consumers thousands of dollars in interest and stop harassment from debt collectors.

What is Debt Consolidation?

When a consumer has difficulty paying down credit card debt or is struggling to make minimum payments, debt consolidation may be the best option. A consumer can reduce his or her credit card debts into one payment with a lower interest rate through debt consolidation. The best type of debt consolidation depends on the individual. 

Types of Debt Consolidation

Although there are many types of debt consolidation, the most popular are:

  • Credit counseling
  • Personal loans
  • Balance transfer
  • Home equity loan

Credit Counseling

Consumers can work with a credit counseling program to make a debt management plan. Credit counselors work with creditors to reduce interest rates and waive fees. The consumer then makes one monthly payment to the credit counseling company. A successful debt management program will reduce the interest rate and eliminate debt in three to five years. However, if a consumer misses a payment, credit card companies can revoke the agreement and demand payments at the original interest rates.

Personal Loan

Consumers can seek a personal loan through a bank or a credit union to pay off credit card balances. Personal loans are repaid in installments over a specified period of time, usually no more than five years, and typically have lower interest rates than credit cards. However, consumers may find it difficult to qualify for a personal loan.  

Balance Transfer

A consumer may also consolidate credit card debt by transferring existing balances to a credit card with a low or 0% APR. By drastically reducing the interest rate, consumers will be able to reduce their debt more quickly. Credit card companies typically charge a 3% fee on all balance transfers, and the introductory rate only lasts for twelve to eighteen months. 

Home Equity Loan

A consumer may be able to take out a home equity loan if he or she owns a house with adequate equity. A home equity loan has the benefit of having a very low-interest rate and the longest repayment period, ranging from fifteen to thirty years.  

Each consolidation option has its benefits. To navigate all the debt consolidation options, a consumer may consult a debt collection lawyer that has experience eliminating consumer debt.