While debt consolidation certainly has merits, it is not the right choice for every individual.Above all, the approach has to match the need and the comfort level of the borrower.“If you’re not absolutely positive that you can pay off your debt in that time frame or if you think you might struggle with building up your debt on credit cards once again, I think getting a new credit card is probably not a good idea,” said Germano.Cash-out refinancing involves replacing your mortgage loan with a new one for more than you owe, taking part of the difference between your old and new loans in cash. A home equity loan gives the borrower access to home equity in cash, which can be used to pay off other debts.A home equity loan does not replace the existing mortgage as a cash-out refinance does, but it is another loan in addition to the existing mortgage.HELOCs differ from home equity loans in that, instead of receiving a lump sum of cash, borrowers have an agreed-upon amount that they can take from their equity, and access as needed over time. There are two categories: a federal Direct Consolidation Loan and private consolidation or refinancing options.Debt consolidation involves combining multiple unsecured debts into one bill, which can be helpful if you’re overwhelmed by an assortment of monthly payments.
“It can be really overwhelming when you have five credit cards to pay and you don’t even know where to start.
Some people prefer a DIY debt management plan, while others benefit from simplified singular payment of a debt consolidation loan.
“Debt consolidation really depends on the person and the type of debt,” Germano said.
“A debt consolidation loan can help you manage your payments easier and less stressfully.
That makes sense for a lot of people.” She added: “But some people would rather tackle a debt management plan themselves.
I’ll sometimes float the idea of debt consolidation so they only have one bill to pay or so they can have a lower interest rate.” There are numerous debt consolidation methods to consider, some of which work better in different situations.