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Many people in the United States have become used to juggling several loans, lines of credit, or credit cards all at once. Having multiple types of outstanding debt at the same time while also dealing with the bills that come with everyday life can feel overwhelming at times.
If your bills keep piling up while you’re also having to manage several monthly loan payments, looking into ways to consolidate your debt could be worthwhile. Keep reading to find out more about debt consolidation options and how you can potentially use your vehicle for a debt consolidation loan.1
How Debt Consolidation Works: The Four Types
There are various ways that consumers can consolidate existing debt. The available options can be categorized as follows:
Balance Transfers
If you have access to multiple credit cards, transferring the balance from one card to another can allow you to consolidate some of your unsecured debt. Credit card customers who have a good credit score often receive promotional offers with low introductory rates in order to get them to transfer existing balances. Although the low interest rates are typically just for a promotional period (which means they expire when the promotion ends), balance transfers can be an attractive way to consolidate debts. Be aware of when that expiration will take place and what the regular rate will be. Also, keep in mind that putting too much debt all on one credit card can also impact your credit score, since credit utilization is one of the factors that may impact your credit score.
Debt Consolidation through Loans
When looking to obtain a loan to consolidate your existing debt, you have several options. They include applying for credit with a peer-to-peer lender, credit union or bank. If approved, you can use the proceeds from your new loan to pay off some or all of your existing debts and other bills. Using another loan to consolidate existing debt primarily makes sense if your new loan has a lower interest rate and APR than your existing debt. If that’s the case, consolidating your loan can save you interest and potentially also lower the monthly payment you need to budget for.
While car title loans usually come with interest rates that are significantly above the rates that banks and credit unions charge, consolidating other bad-credit loans such as payday loans or pawn loans can potentially be advantageous.1 As mentioned above, be sure to compare the financial terms of any title loan approval you receive with the terms of your existing debt – only proceed with a title loan debt consolidation if it’s financially beneficial for you!1
Consolidation Through Your Home Equity
If you are fortunate enough to be a home owner, you may be able to use the equity in your house or condominium to refinance your existing debt. Using your home as collateral, a home equity line of credit may allow you to borrow at very favorable rates and use the funds to pay off existing, higher interest debt. In order to qualify for debt consolidation using your home equity, you must have a decent amount of equity already built-up in your home. Equity is the value of the property after subtracting any outstanding loan balances.
While home equity loans usually have very attractive interest rates, don’t forget that your house would be on the line if you default on the payments. In the worst-case scenario, you could face foreclosure if things go wrong, so be sure that you can make the payments each month.
Debt Management Plans
Debt management plans can be accessed through some non-profit or for-profit providers that may reach out to your creditors in an attempt to secure a consolidated, low payment at reduced interest rates if your existing debt has become difficult to manage. It’s important to note that not all lenders and loan servicers are willing to engage with a credit counseling service. Note that pursuing this route can also impact your credit, and it could be difficult to compare the fees that these organization charge to the savings that you might realize.
Alternative Options: Credit Services Organization (CSO) vs. Credit Access Business (CAB)
While many Americans find themselves struggling with debts, it’s common for consumers to consider more creative borrowing options and financial services to get by. In some states, those options include seeking assistance from Credit Services Organizations or Credit Access Businesses.
Credit Services Organization (CSO)
CSOs were formerly defined as credit repair companies, and are businesses that provide payment in order to extend consumer credit. CSOs are regulated by the applicable government agencies to ensure that all stipulations are met and that consumers don’t pay outrageous fees for help with credit repair.
Credit Access Business (CAB)
The term credit access business is used in some states to refer to a new model of CSOs. Payday loan companies and car title loan companies in certain states operate with a CAB license that is more specific to offering loan brokering services. The CAB license allows these companies to assist potential borrowers to find loans and service them, in exchange for charging a fee known as the CAB fee.
Debt Consolidation as a Step toward Getting Out of Debt
We all know what it feels like to deal with the smothering weight of debts we simply can’t afford to pay. When you are forced to make a choice between paying your bills and feeding your family, it may be time to research borrowing options that can help you out when times get tough. Debt consolidation is a viable option for borrowers who want to combine all their debts and bills into one place, but it’s important that doing so allows you to realize some of the potential benefits of a debt consolidation.
Done right, a debt consolidation can benefit you in the following ways:
- Interest savings: You can save on interest if the interest rate on your debt consolidation loan is lower than your existing debt
- Easier to manage: Only having to remember to make one consolidated monthly payment vs. multiple monthly payments can be significantly easier to manage and simplify your finances
- Payment processing savings: Depending on the lender and loan servicer you work with, having fewer monthly payments can save you payment processing cost
- Potential credit boost: If consolidating your debt results in fewer late or missed payments, your credit score may benefit over time
Credit cards and loans aren’t in themselves bad, but if they get out of control and amounts pile up, they can make a prosperous financial future more difficult to attain. This is the reason why consolidation of debt can be a good choice for some borrowers. Instead of juggling multiple debts, you can breathe easier with just one payment to worry about.
It is important to remember though, that consolidation may solve one symptom of having debt, but it won’t fix any underlying causes that led to it. For a brighter financial future, it is important to also practice responsible spending, saving and budgeting habits for a more permanent solution. Commit to making and even writing down a money strategy and stick to it. Consider getting an extra job to bring in more money, cutting out unnecessary spending and living on less than you make to start paying off your debt for real.
Can You Use a Car Title Loans For Debt Consolidation?
While traditional debt consolidation may be a long-term solution to your debt problems, borrowing against your vehicle can be an option when you’re looking to consolidate other bad-credit debt.1 An online car title loan serviced by LoanMart can potentially help you out of a tight spot.
Car title loans allow you to use the equity in your automobile to borrow money at competitive interest rates while keeping and driving your car. You can use the proceeds of your auto title loan to pay off other high interest debt such as payday loans, unsecured loans or pawn loans.
Whatever your situation, auto equity loans serviced by LoanMart are accessible even to people with bad credit and several outstanding loan balances.1 If you have credit card debt or other payments you need to make soon, an auto title loan could help you catch up on overdue payments and debt.
Keep in mind however that as a debt consolidation option, a title loan will only make sense if it benefit you financially. So be sure to compare your title loan approval terms to the terms of your existing debt!1
If you are interested in discussing title loans for the purpose of debt consolidation, call us today at 855-422-7412 and speak to a friendly representative about the potential benefits of car title loans.
