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Best Debt Consolidation Loans: Reduce Personal & Bad Credit Card Rates

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Best Debt Consolidation Loans: Reduce Personal & Bad Credit Card Rates

Personal Loan

Another option is to take out a standard personal loan from a bank or other credit institution. If you can secure a lower interest rate on the loan than you are currently being held to with your credit card payments, this may be a viable option to help you to alleviate financial stress. A personal loan may also reduce the risk that you fall behind on your payments since you now only have to worry about one payment rather than a lot of smaller sums to be paid each month.

One of the drawbacks of a personal loan is that you likely need a solid credit score to qualify for favorable terms. You will also need a steady employment history. Before you sign on the dotted line, it is critical that you carefully examine the repayment terms. Even though you are now enjoying a lower monthly interest rate, the repayment terms may be longer, causing you to pay more interest over the life of the loan.

DIY Debt Snowball Method

If you do not want to take on an additional loan simply to pay down existing debts, you can try one of the most popular DIY methods by snowballing your payments until they are all paid off. Championed by financial guru Dave Ramsey, the debt snowball method is a proven debt reduction strategy in which consumers are instructed to pay off their bills in the order of smallest to largest sum owed, regardless of the interest rate.

When following this plan, you will make only the minimum payments on every debt except for the one with the smallest balance. With this debt, you will put as much money as possible toward paying it down. Once the debt is paid off, you move on to the next smallest amount owed, snowballing all of the money that you were paying on the last debt into paying off this current debt. You then repeat this method until all of the debt is gone.

One of the biggest advantages of the debt snowball method is that it is easy to understand and implement. The clear rules make it simple for consumers to follow. Another benefit is that you will be encouraged to keep the process moving forward once you pay off that first smallest debt. The mental boost provided by simply paying off one debt can encourage you to keep going. This method also helps you to see the fruits of your labor, encouraging you to develop these healthy financial habits as you strive to stay out of debt for good.

The biggest downside of this method is that you may end up paying more interest over the long run. Because you are focusing on the smallest debts as you move up the chain, you are not necessarily taking advantage of the lowest interest rates. Many people find that the psychological benefits provided by paying off debts quickly outweigh the money saved by paying those with the highest interest rates first.

DIY Debt Stacking Method

Similar to the debt snowballing method is the debt stacking method. Like the snowball method, this process encourages you to focus on paying down one debt at a time before moving on to the next. The difference between the two approaches is that the debt stacking method advises that you pay off the debts with the highest interest rates first and then move down to the lowest interest rates. While this may take a long time and the psychological benefit may not be as immediate, you will save money on interest by knocking out the highest rates first.

Debt Relief Programs

A debt relief program is often the last resort for people who are drowning in debt. A debt settlement company will negotiate all of your debts with the individual creditors for you. One of the central tenants of this plan is that you pay the settlement company to negotiate. Some debt relief programs will also make some of your debt payments for you, strategizing how to let some go into default so that the creditors are more likely to negotiate the balances down and save you money.

One of the biggest advantages of this type of debt reduction is that it is accessible to people with poor credit. Because your overall level of debt is reduced through the negotiation process, it is also one of the fastest ways to become free of debt. Some of these programs may also provide free credit counseling while going through the process. The goal of this counseling is to equip you with the knowledge that you need to make better financial decisions once you are finally out of debt so that you do not relapse.

Unlike many more strictly regulated enterprises, it is easier to get burned using a debt relief program. It is not uncommon for these types of companies to use predatory practices to lure in desperate consumers. For this reason, it is important to proceed with caution and go with the companies that have a proven reputation. You can guard yourself against a poor experience by refusing to pay the settlement fee prior to the debts being negotiated down.

One serious drawback to a debt relief program is that you may have to pay a tax penalty on the amount of debt that is reduced. This kind of program may also negatively affect your credit score both in the short term and in the long run. Although the debt consolidation company will be making all of your payments on your behalf, it is still your responsibility to ensure that those payments are made to your creditors on time. Your credit score will suffer if the debt repayment company fails to pay on time. If the program is not executed properly, it may result in legal ramifications that end up costing you more money out of pocket. The bottom line is that you need to proceed with caution.

Combination of Options

None of these options have to be all or nothing. It is possible to come up with your own personalized plan that relies on multiple debt relief options to pay off what you owe. For example, you can take out a home equity loan in a smaller amount to pay off your highest interest rate loans and then employ the debt snowball method to the more manageable amounts. Once those are paid off, you can turn your focus back to paying off the home equity loan. In the meantime, you have eliminated the debts that were costing you the most in interest each month.

You can also take it upon yourself to reach out to creditors to negotiate more favorable rates and terms. All of this combined with a stricter budget can help to guide you out of financial distress and put you back in control of your financial future.


At the end of the day, it is critical that you take into consideration all of the factors of your individual financial situation before making any big decision. Debt payoff is not a one-size-fits-all approach. Your total debt level, your current credit score and income, whether or not you own a home, and your projected financial growth over both the short term and the long term are all factors that need to be considered before deciding if a debt consolidation loan is the right fit for you. With the right planning, honest analyzation, and careful execution, you can choose a debt relief avenue that is the most favorable to your specific needs and preferences.

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