To make paying off your debt easier, you might want to think about debt consolidation. This means taking out one big loan to pay off a few smaller ones. The main perk is that you only have one loan payment to deal with, usually with just one interest rate. This simplicity is why many people find debt consolidation helpful.
CHECKING YOUR CREDIT
First things first, check your credit profile. You can get a free credit report once a year from each of the three major bureaus. But if you want your exact credit score, you might have to pay for it. (If you’re denied credit after July 21st, you can get the score that influenced the decision for free.) A good credit score can help you get better loan terms.
HOW MUCH CAN YOU BORROW?
Next, figure out how much you can borrow. Many people use a home equity loan or a second mortgage for debt consolidation. If you have home equity, you might get a tax break on the interest, and the rates could be better. But be careful—using your home as collateral means you’re putting it at risk.
If not, you can consider a peer-to-peer (P2P) loan. Showing you’re serious about managing your finances might encourage others to lend you money through P2P platforms like LendingClub or Prosper.
WHICH LOANS WILL YOU CONSOLIDATE?
After figuring out how much you can borrow, decide which loans to combine. Look at the balances, interest rates, and other details. If you get a lower interest rate loan, it’s smart to pay off the high-interest debts first.
If you go with a home equity loan from a mortgage lender, they might pay off the loans directly for you. With money from other sources, you’ll need to handle the repayments yourself. Keep in mind, the aim is to simplify your payments, not to take on more debt.