Debt Consolidation

Consolidation Loan

Most consolidation loans are unsecured loans for under $10,000 that are taken out to pay off numerous credit cards and other small loans. These loans tend to have slightly lower interest rates than what are charged on credit card balances. These can be useful for some, but this option means adding another line of credit. You must have reasonably good credit to be approved for a consolidation loan with a decent interest rate.

If you decide to take out a consolidation loan, refrain from making new charges on the original credit cards. Some credit cards offer "consolidation loans" promising a set payment and payoff period. These can be convenient, but the interest rates tend to be fairly high, often around 16 percent.

Home Equity Loan

Often home equity loans are used to roll high interest debt into a refinanced mortgage loan. This strips the equity in the home, and it secures what was unsecured debt. Still this can be an attractive option if you have good credit and have good job security. Home equity loans tend to have some of the lowest interest rates available. Also, the interest can be tax-deductible, which can offer even more savings.

Debt Management Plan

If your credit is already damaged and you are falling behind on debt payments, then you may wish to seek credit counseling. Sometimes a credit counselor will recommend a debt management plan, which does not consolidate the balances, but rather it consolidates the payments into one monthly payment. Credit counselors frequently are able to negotiate a lower overall monthly payment and substantially lower interest rates to allow you to eliminate credit card debt within two to five years. This is an especially attractive option if you have damaged credit or high balances and would have a difficult time qualifying for another loan product.

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