Wikipedia, the online encyclopedia, defines it as, “Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.” It goes on to say, “Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house.”
Not even half the story
While this is all true, it’s not even half the story as there are a number of other ways to consolidate credit card debt besides taking a loan.
For example, many people have consolidated their credit card debt by transferring all of their balances to a new card with either lower interest or zero interest for some period of time. These are called 0% interest balance transfer credit cards. The reason they are called this is because they come with zero interest for anywhere from 6 to 18 months. If you can qualify for one of these cards, you could transfer balances on your high interest credit cards to the new one and enjoy a sort of recess during which time all your payments would go towards reducing your balance.
You can also achieve debt consolidation through a strategy call consumer credit counseling. If your city or town has a consumer credit counseling agency, you could do this in person. If not, there are a number of credit counseling alternatives available online. Regardless of which of these you choose, things work about the same. A counselor will review your debts, assets and expenses and help you develop a budget. The two of you will develop a payment plan. You counselor will present the plan to creditors. Once they all approve, the credit counseling agency will take responsibility for paying them. You’ll send the agency a check each month until you complete your plan. This usually takes about five years.
A third option for consolidating credit card debt is called debt relief or debt settlement. It’s where you hire a company to negotiate with your creditors to reduce both your interest rates and balances – to settle your debts. Once all your creditors agree to the settlements, the company will provide you with payment plan. In most cases, this plan will help you become debt free in 24 to 48 months or faster than a debt consolidation loan, credit counseling or balance transfers.
Get unstuck from your credit card debt. As you have read, there are several options that could help. The important thing is to pick one and get started – to get your debt under control and get that stress out of your life.