Consolidating Debt

When you get far into debt like I have and like many people have they will either start contemplating consolidating debt or someone will suggest it for them. Most of us have heard of this but why is it useful? Well it reduces the number of debt payments you have to make and because you’re only carrying one balance that has interest growing it can reduce your overall cost.
For example if you had 4 credit cards at say 18% annual interest and 1 with a 11.5% interest then moving all over your balances onto the card with the lower interest will mean you’re paying less to have that much debt and you only have to worry about one bill every month instead of 5.

But consolidating debt doesn’t stop there you can get a line of credit which will often have interest that is far lower than any credit card. You can put all of your debt onto a line of credit again reducing your payments and getting rid of the cards. I’ve done both of these in the past and it has helped bring me from the brink and I’m now able to better manage my debt load.

Now aside from the above there are other means to consolidate your debt, many mortgage companies will allow you to put your debt onto your mortgage by effectively pulling out some of the equity in your home to pay off the debt. I’ve always thought this was an interesting idea but I would only ever do it as a last resort. Your mortgage may be a lower interest than your Line of Credit or Credit cards but interest isn’t amortized over the life of the mortgage (typically 20+ years). If you do this you’ll end up paying more in interest over the run.

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