Get Out of Debt With Consolidation

The wisest thing you can do when you are in debt is to get out of it. This may sound obvious, but it is easier said than done. There are many different debt relief options, and debt consolidation is just one of them. But consolidation is also one of the most popular methods for saving time and money.

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Whether or not this is the right plan for you depends on your budget, your credit, and your personal finance situation. The goal of debt consolidation is to take all of your high interest debts and combine them into one low interest debt.

By bringing the interest rate down you are also lowering your monthly payment amounts, leaving you with more money each month for other important things. Also the interest savings could be applied to the loan principle, which would allow you to pay off the loan faster and be out of debt sooner.

Here are the three most common methods of consolidating your debt:

Balance Transfers

You can take advantage of low credit card balance transfer rates. If you have multiple high interest credit cards then you can take out a single card with low interest and apply the balances on the other cards to that one. Just be aware that credit card providers usually charge a transfer fee to keep people from card hopping to avoid interest rates.

Home Equity Loans

If you have available equity on your home then you can take out a home equity line of credit. This option also comes with a lower interest rate and in most cases the interest you do pay is tax deductible. Check with a tax adviser to know for sure before you take out the loan. The only downside is that the monthly payments you give to the equity loan are on top of the monthly mortgage payments you are already making.

Unsecured Line of Credit

This consolidation option, known by its acronym ULOC, is where a bank grants you access to an unsecured line of credit on the premise that you will pay it on time and with interest. It is much like a credit card in this regard. However, instead of getting an actual card from the bank, you will be provided with checks to access your funds.

Secured vs. Unsecured Loans

You need to know the differences between unsecured and secured loans before you agree to any consolidation terms. When you take out a secured loan you are agreeing to put something of value up as collateral, like a vehicle or your house. Because the lender has this security you pose less of a risk, allowing the interest rate to be lower and the total amount borrowed to be higher.

Of course the disadvantage is that if for whatever reason you are unable to pay the loan and have to default, then the creditor can take whatever you put up for collateral and sale it to make even on the loan. If you are not careful you could lose your home or your car. On the other hand, an unsecured loan does not require this security and is instead based entirely on your credit history. Credit cards and personal loans (like ULOCs) fall into this category of loan. Additional information can be found in this NOLO article.

The benefit is that you do not risk losing any valuable personal property, but the downside is that the lower your credit score is the higher the interest rates will be.


You want to make sure that whatever loan option you choose isn’t going to cost more in the long run or cost too much and force you to default. Review your financial situation and ask some important questions. Is the interest rate fixed, variable, or set with an expiration date? Will you incur penalties if you pay the loan off early? How long is the loan term and will the monthly payments fit into your budget? A debt consolidation loan can be a great way to get out of debt and fix your credit situation. You just need to make sure you pick the option that works best for your current circumstances.