All around us, people live in debt. Why?
To impress others? Perhaps.
To afford luxury items that are beyond our means? Also another reason.
Perhaps life has just thrown you a curveball and you have fallen upon hard times.
Regardless of the reasoning, the fact still remains that one in three Americans are in debt to some entity, be it credit card bureaus, financial institutions, or student loan services. When this debt goes to collections, it can be a nightmare. Creditors calling constantly, hassling, making litigious threats and making a good person afraid to pick up the phone.
If you are in debt, bills seem to stack up frighteningly fast, and instead of owing on one credit card or loan, you instead may owe several different creditors, and the ensuing confusion of multiple due dates and amounts to pay out can be overwhelming. What is the solution when you are swamped in bills and being constantly hassled?
Debt consolidation is a process by which all the different bills that are due regularly are combined into one payment to a single consolidator. The benefits of this are obvious — instead of worrying about a $600 car payment on the 3rd, an $850 credit card bill on the 6th, a $235 student loan repayment on the 15th, and a $200 hospital bill from three years that comes due every third Monday, debt consolidation allows you to just pay one lump sum to a single entity, typically either a credit card company or an individual who has loaned you money…but more on that later.
What is The Best Way to Consolidate Debt?
The two main strategies used to consolidate debt include balance transfers and personal loans. What is the difference between the two?
Let’s look at balance transfers first.
A balance transfer is just what it sounds like — you transfer the balance owed on one credit card to a new credit card, one hopefully offering a very low APR or perhaps even 0%. Be careful though, cards only offer 0% APR for a period of 12 or 18 months initially, so if you cannot see yourself paying off your balance in this time period, it may be more fiscally responsible to switch instead to a card offering a reduced APR rate, so you are not caught unaware when the 0% APR grace period ends.
Some of the best cards for those seeking debt consolidation include Chase Slate, Citi Simplicity, and Barclaycard Ring Mastercard.
Chase Slate offers 0% APR for 15 months, with no annual fee or balance transfer set up fee IF you complete the balance transfer within the first 60 days of your account being open. After this time period, there is a $5 or 3% transfer fee, whichever is highest.
Citi Simplicity offers 18 month 0% APR, and also has no fees for anything. Even if you are late on your payment, you are not charged. This may indeed be the simplest option of the three cards discussed.
Barclaycard Ring Mastercard is a great choice for those consumers who are threatened to be pushed off the edge by debt. While Barclaycard Ring Mastercard does not offer a 0% intro APR, it does offer a reasonable 8% APR on transfers and purchases. This card will also give you 1% cash back on the total transferred amount if the balance transfer occurs within the first 60 days, without any balance transfer fees.
Consolidating Through Loans
If a balance transfer is not an option as the total amount owed is too much (very possible), a personal loan may be the next best thing. Seeking a loan from a bank can be a difficult process involving hefty amounts of paperwork and usually some sort of collateral, be it a title deed to a car or a piece of property. Personal loans offer great interest rates which is very good news for the debtor seeking to secure concise consolidation, as the fixed rate ensures that the amount of the first payment will be the same as your last payment when you finally wipe out that pesky debt.
Which Loan Service is Right For You?
If you are in debt up to your eyes, Lightstream may be the service for you. Offering startlingly low interest rates specifically targeted at those looking to consolidate debt , Lightstream offers a loan of up to $100,000. Unfortunately, you must have excellent credit in order to borrow. When all you are looking to do is put your bills in one place and have great credit histor, Lightstream may be the best way to consolidate debt.
Lending Club is a personal lending service that is quite unconventional. After being approved by submitting an application, you post a request, much like a Craigslist ad or eBay listing stating the amount you seek. An investor, either an individual or a business, will then offer a certain amount of money at an interest rate as low as 6.68% (and as high as 29.99%). Remember, this may be the friendliest, most personal way to receive money, but these people who want to lend you this money definitely have their bottom line in mind so you need to tread cautiously. If your request does not get funded for the full amount (up to $35,000) you can either take it down and re-list your request or accept whatever the interested investor has offered.
What if your credit isn’t so great and Lightstream is out of the picture and no one on Lending Club wants to lend you money? You can always try AvantCredit. Here the trade off for high approval rates is high interest rates, starting at 19% APR with a maximum loan amount of $20,000. However, keep the positive in mind — by regularly making payments, your credit score will drastically improve and soon you can pursue other avenues. Remember, you are only paying one entity with these options as opposed to multiple credit cards, hospitals, student loans, and the like.
There is no obvious best way to consolidate debt, as the details of the situation vary from person to person, from account to account. Hopefully this article has shed some light on the most popular options and allowed you – and your wallet – to breathe easy!