Eliminating debts in a timely fashion is a crucial part of financial health. This is particularly relevant when multiple loans start to pile up. In such a scenario, keeping track of each and managing cash payments individually can be challenging. In such cases, a consolidated loan can help make matters smooth. In this strategy, all your loans are rolled into a single debt, which you can pay with one interest rate every month.
This approach can be a smart move. You need not pay off all your debts, which otherwise would have been a hassle. However, you need a good credit score to be eligible for debt consolidation. Further, you might strategise how to pay off a consolidated debt for your credit card. This article covers key ways to plan for the best debt consolidation loan.
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Through personal loans
You can take out these unsecured loans from credit unions and banks on a lump sum basis. You can use a personal loan for any purpose and must repay the amount through monthly installments based on a specific interest rate. These loans tend to have lower interest rates, which makes them perfect for consolidating your credit card debts.
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Get a new credit card.
Getting a new credit card can help you lower your burden through reduced interest rates. Credit cards are of different types, and each comes with perks and benefits depending on factors such as the demographic, income bracket, and the minimum balance they aim at. As such, some cards offer lower interest rates than others. There are often promotional periods of cards that can further help lower your financial burdens. It’s also wise to look for cards with lower initial fees.
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Student loans
Students with loans can often gain several options to consolidate their loans. This can happen in a couple of ways. If you stretch out your loan repayment to a more extended period, you can lower your interest rate to a more manageable amount. However, this also means you will take longer to eliminate your loans, which implies paying a greater total interest overall.
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Home loans
If you’ve built equity over the years, you might be able to consolidate your debt through a home equity loan. These are secured loans where you can use your equity as collateral.
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Have a debt management plan.
One of the best ways to most effectively manage your loans is to consult a financial or credit counsellor. You must apply for a debt management program where, if accepted, you can make monthly payments to the management company, which, in turn, pays all your creditors.
To qualify for debt management plans, you must have a good credit score and be confident with your payments. Once you qualify, the management company will negotiate with each of your creditors for a lower interest rate, which will help you be debt-free faster.
Conclusion
This article explored five strategies for effectively consolidating your credit card debts. In the long term, following a consolidated loan strategy helps improve your credit scores. With reduced interest rates, you can pay off your dues earlier. Not only does this lessen your financial burden, but it also makes your eligibility process for future loans smoother. You can get approved by creditors faster and gain better rates.
However, rolling over pre-existing loans into a new one can also hurt your credit score. Maintaining a clean record is essential to being confident with your payments. I hope to help you make more informed financial decisions in the future.