Debt Consolidation Options to Consider in 2019


People will often advise that the most lucrative way to clear debts is to consolidate them. Running up a debt is common these days, but you can pay it off, if you proceed systematically.


Take a debt consolidation loan

This type of loan gives you the money to pay off outstanding debts by bringing them all together under one big loan. You only have one monthly payment to clear, while paying off the debt in a set amount of time. However, you might need to put up collateral and present a decent credit score.


Take out a second mortgage

This is basically when the bank lends you money against the portion of the home owned by you. If your mortgage is $250,000 in a home worth $300,000, you own $50,000 of the house, which is called equity. The second mortgage is when you use some of this equity to pay off debts. This option generally has low interest rates, while you can extend the length of time required to pay back the loan for affordable monthly payments. Make sure you have enough equity and can afford the fees that might be involved in setting u a second mortgage.


Use line of credit or overdraft

Lines of credit and overdrafts can be secured or unsecured depending upon your finances and the bank’s lending policy. You have to meet certain criteria to be eligible for this option. You can turn your debit card into a credit card for spending money you don’t have up to a pre-decided limit. You just have to make a minimum payment every month, which can be flexible as per convenience. Interest rates for lines of credit are based on prime rate set by Bank of Canada at 3.95% – the prime rate goes up, the minimum monthly payment is also impacted. Overdraft can be expensive with interest rates shooting up to 20% and above. You need to ensure that you pay a set amount each month, or your debt will never be cleared properly.


Use credit cards

This option involves compiling all credit card balances onto a single low interest rate card – you pay off this card by setting a particular amount each month that is determined beforehand. Search for credit cards with extremely low promotional interest rates, but keep in mind these are for a few months, after which you have to revert back to the actual rate that might be high. Consolidating debts under one umbrella makes it simpler to keep tabs of how much you owe and chalk out a payment plan accordingly.


Opt for a debt management program

This program gathers all credit card payments into one monthly payment that is made to a credit counseling organization – they are responsible for allocating the funds to your creditors at zero or extremely low interest. You will need prior permission from creditors to get into this program – they are likely to agree if a non-profit credit counselor proves it is the right fit for your situation. Most debts are paid off within 5 years or even less! If you successfully manage to complete the program, it shows on your credit report and reflects positively on credit score.


Do a debt settlement

The idea is if you receive a cash infusion while facing problems in paying off credit card debts, you can reach out to your creditors and ask them to settle your debt with them for less than your full balance if they would accept a lump sum payment. It is best to work with a credit counseling organization with trained professionals on board to discuss this arrangement. But then again, you need a large amount of cash on hand if you wish to settle – if there is none, you can’t consider this option. If you work with a for-profit debt settlement service, your credit score will plummet and take years to recover.

There are several options to consider while paying off debts – seek professional advice before you go ahead!

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