Debt consolidation is not about making all your debts disappear completely. The process involves restructuring the loans in such a way that it either extends the loan period, reduces the rate on loans, or both.
After consolidation of the debts, you will have an easier time making loan installment payments. Even if the loan consolidation does not involve extension of the maturity period or decrease in the rate, it will help in giving you greater peace of mind, as it is far easier to make a single installment payment as compared to making payments for multiple loans.
Given this, consolidation of the loan can be a smart move in majority of the cases. This could lead to easier management and repayment of the debt and will allow you to spend less time worrying about making loan payments and more time enjoying your life.
Here, we will discuss some of the strategies you can take to consolidate your debt and reduce debt burden.
1. Consider a Federal Direct Loan Consolidation Plan
Have you been burdened with student loans? Do you find it difficult in paying the loan installment amount? If so, you should consider applying for Federal Direct Consolidation Loans. This loan option allows you to consolidate the loans at a lower rate than the original loans.
You should consider this option if you own a private student loan. It is recommended even if consolidating the private loan will not result in reduction of the rates. This is because federal loans generally have a limit that prevents them from rising up to a certain level.
2. Secured Consolidated Loans
Another strategy to consolidate the loan is to opt for a secured consolidated loan by securing your property such as a car or a home. This will mostly likely lower the rate on the loan leading to lower rates and a smaller monthly payment. You can also utilize the savings incurred due to small monthly payments to repay the principal amount. This will further decrease the total loan payment made to the lender.
That being said, you should only consider using this option if you have a property that you can afford to lose such as a second car or vacation house. Using your primary residence or vehicle to secure the loan is not a good strategy when it comes to securing the loan.
3. Credit Card Consolidation
Credit card consolidation strategy is effective if you are able to lower the rates on obtaining a new loan. This is possible if you move the credit card balances onto a new card with a zero percent introductory offer. A number of cards come with introductory offers that charge nothing for a certain period of time. You should use the grace period as much as possible to reduce your balance, as the rate kicks back to normal after the end of the period.
On a final note. You must research all your options carefully before consolidating the loan. Debt consolidation generally lowers the debt burden. However, in some cases, the opposite can happen, so it is important to make your move wisely.
Learn more on Debt Consolidation.