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Debt Consolidation: What are Your Options?

By: Jessica Malitoris

When dealing with a lot of debt, debt consolidation can be an excellent solution. It allows you to condense your various types of debt with a bigger loan, reducing the amount of interest and number of bills to be paid. However, in the current economic climate, finding lower interest rates can be a challenge, and the collateral some lenders require can make the loan not worth it.

So what options are there? Obviously, it is always possible to take out a loan to cover all of your debts, and pay off that loan gradually. Using a credit card for this purpose is one possibility if you are going to attempt this option, generally if you’re trying to consolidate payments for multiple credit cards. This form of consolidation can be very convenient, but it is important to know that you can pay off your debt in the introductory interest period. If not, you can end up paying more money than you would have, and run up even more debts. Home equity loans provide a similar option, frequently with good interest rates. However, as with using a credit card to consolidate debt, be certain that you can make your payments. In this case, you risk foreclosure in addition to continued debt.1

But you also don’t have to coordinate your debt on your own. Another option is a debt-management plan, in conjunction with the assistance of a credit counselor. Your credit counselor helps you to consolidate your debt and reduce your interest rates by negotiating for you. There are a number of organizations which offer recommendations or advice on credit counselors and agencies.2 The Association of Independent Consumer Credit Counseling Agencies (aiccca.org) and the National Foundation for Credit Counseling (nfcc.org) are both excellent examples of credit counseling agencies.

And finally, as a last resort, declaring Chapter 13 bankruptcy is also a possibility. Doing so will have a very serious impact on your credit history, and should only be considered after you have ruled out all other means of dealing with your debts.3

References:
1Anderson, Max. “Understanding Your Debt Consolidation Options.” http://www.consumertipsreports.org/understanding_your_debt_consolidation_options.html
2Ataiyero, Kayce T. "Combining debt can be useful, but risks abound." Chicago Tribune. 28 Aug 2009. 31. eLibrary. <http://elibrary.bigchalk.com>.
3Anderson, Max. “Understanding Your Debt Consolidation Options.”
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