One way to get a handle on heavy debt
(without declaring bankruptcy
) is through debt consolidation. Debt consolidation allows you to pay off all of your debts with a lump sum so that you can make a single payment each month, preferably at a lower interest rate than the average interest rate across all of your outstanding debt
. Beware of debt consolidation companies that charge fees for helping you reduce your debt. This method may result in a negative impact to your credit report
because although a lender may agree to lower your debt, it will not be paid according to your original lending agreement.
A better method is to use low interest credit to consolidate all other debt.
Some consumers use home equity loans
for this purpose because the interest is often tax deductible
(Be aware that a home equity loan is a second mortgage on your home - read the
agreement carefully). Sometimes you can use an existing credit source to consolidate
all other outstanding debt. Lenders will often lower interest rates
if you ask, or they may offer you a special promotional transfer rate for a set period of time.