The phrase that most people associate with getting out of debt is “debt consolidation”. Consolidating debt requires getting a new loan to pay out existing debts. This situation is ideal if you have great credit and can get an interest rate lower then what you are paying right now.
Now there are two types of consolidation loans. Unsecured loans are not secured against an asset and typically have higher interest rates and secured loans (mortgages) are collateral loans and have lower interest rates.
Often the best and easiest way to get a lower interest rate is to get a second mortgage and pay off the debts with the proceeds of that financing. Consolidating your high interest credit card debts into a lower interest second mortgage is smart.
Borrowing unsecured money in the form of a consolidation loan is a very expensive way to pay off debt, you can expect to pay much more then what you borrowed doing things this way. This is a dumb way to get rid of debt but extremely profitable for the lender.
Those with bad credit often make the colossal mistake of getting an unsecured loan at an even higher interest rate unsecured loan then what they are paying now. Unsecured consolidation loans can range from 28-35% interest. Run; don’t walk away from these debt consolidation offers. This is not the best solution to debt. You cannot borrow your way out of debt with these types of loans and it is almost always a path to much deeper troubles.
If you are not a homeowner and have bruised credit then getting a consolidation loan with a lower interest rate is probably not an option. Your bank will tell you if they can help or not. Bankruptcy is an option but should only be used as a last resort.
If you do not have any security like a home to put up then your best bet is a debt settlement plan. Provided you owe $10,000 or more in unsecured debt and have steady income. You can get out of debt in 12-36 months; even with the fees you pay, your total cost is usually about half of what you originally owed. Debt settlement plans are highly effective at eliminating debt and should always be considered before bankruptcy if your bank turns you down. What debt settlement does is reduce your debt by about 50-70% before you pay it.
Homeowners with sufficient equity but bad credit can actually get out of debt in about one month. The same principle of debt settlement applies as above, the only difference is the money to settle is available right away and you can get out of debt much sooner.
Debt settlement and mortgage financing is a marriage made in heaven for those in financial hardship, but not all homeowners will qualify.