Debt consolidation without a loan

When some people talk about `debt consolidation`, what they are actually referring to is one type of debt consolidation: a debt consolidation loan. This is a new loan designed to `consolidate` multiple debts into one, making them simpler to manage and potentially reducing monthly payments.

However, there are other types of debt consolidation that can help in different ways. Here`s a look at different types of debt consolidation for different needs and circumstances.

Debt consolidation with credit cards

Even though credit cards are traditionally seen as a way of borrowing money, some types of credit card can actually make repaying debts easier. In particular, a 0% balance transfer credit card could be very useful for this purpose.

A 0% balance transfer credit card allows you to transfer debts from other cards, and it won`t charge interest on the combined balance for a time-limited period. The interest-free period is often around 12 months, although some deals last longer than this.

This enables you to repay your debts without interest (until the interest-free period expires). Repayments can be flexible - you might choose to repay it in equal amounts over the course of the interest-free period, for example, or in a lump sum towards the end.

Just remember that you must clear the balance in full before the interest-free period ends to avoid paying any interest at all. And of course, you`ll be required to make the minimum payment every month.

Also remember that there will usually be a one-off balance transfer fee - typically amounting to 2-5% of the balance.

Debt consolidation for unmanageable debts

If you have a serious debt problem and you simply can`t afford your payments, then neither a debt consolidation loan nor a 0% interest credit card is likely to help you, mainly because it involves replacing existing debts with another debt. If you`re struggling, then you`ll need to consider debt solutions that can reduce the amount you pay towards your unsecured debts each month, such as a debt management plan or an IVA (Individual Voluntary Arrangement).

Both these debt solutions `consolidate` your monthly payments into one, making managing your finances simpler. Assuming you can reach an agreement with your lenders, your payments would be based on what you can afford after you`ve covered your other essential costs.

This type of debt solution will have an impact on your credit rating, but could still really help if you`re struggling. Talk to an adviser for more information on the other potential drawbacks involved - e.g. debt management can increase the overall amount repaid, while an IVA can require you to release equity from your property.

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Tags: debt, debt consolidation, loan, loan consolidation, credit card, IVA

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