If you’re being swallowed up by financial obligations, debt consolidation could be just the ticket you need. However, there are multiple strategies to consider. This can help you decide which is right for you.

What is Debt Consolidation?

Consolidating unsecured debt is the process of combining multiple debts such as from credit cards or student loans into one monthly payment. Debt consolidation services can lower your interest rate, which can help you save money, lower your monthly payments and help you pay off debt quicker.

Balance Transfer

When evaluating a debt consolidation strategy, you may want to consider balance transfer. This entails opening a new credit card with a promotional low or zero-percent interest rate, then shifting your existing credit card debt to it. Essentially, you will have reduced your interest rate, which saves you money.

There is usually a fee for the amount transferred, although some credit card companies waive such fees for consumers with excellent credit. There will also be a cap on how much you can transfer.

This may be a good strategy, provided your credit score can get you the promotional rate, which expires after a time. One caveat here though, be sure you only transfer an amount you can clear before the promotion window closes. Otherwise, you could be look at a much higher rate of interest.

Debt Consolidation Loan

This kind of debt consolidation works similarly to balance transfer, it’s just that you get a loan instead of a line of credit.

What you do is open a loan and use it to pay off your current debts, then repay the loan. Just as you would with balance transfers, you’ll get the best terms if you have good to excellent credit.

This is only a wise strategy if the loan has an interest rate that’s markedly lower than the rate of existing debt. You can likely avoid origination fees, which some lenders charge, if you shop around some.

This may be a smart tack if the loan offers better terms than any available balance transfer, or you’re worried about being able to pay a balance transfer debt during the introductory interest period.

Debt Management Program

The above strategies are generally aimed at those with good to excellent credit. But you still have options if your credit score is less than ideal, and you have high-interest debt. One of them is a debt management program.

These plans involve working with a credit-counseling agency to pay down your debts. You’ll make one monthly payment, which the debt management company disburses to your creditors. In some cases, your creditors will lower interest rates and waive fees while you are on the plan, which is structured so that payments are manageable. The plan continues until your debts are paid.

Technically, debt management is not a form of consolidation, since under the plan your accounts remain separate and are not consolidated into a new financial obligation. Still, the strategy offers the benefits of consolidation since you are only required to make a single monthly payment and you often receive reduced interest rates.

This may be a smart solution if your credit renders you ineligible for favorable rates on a balance transfer or consolidation loan, and if you’d like to have a financial counselor as a resource and financial education during repayment. It may also be a good move if you mostly have high-interest unsecured credit card debt, or think you’d have a hard time repaying a consolidation loan.

So, yes, a lot goes into evaluating a debt consolidation strategy. But at least you have options. As you size them up against your financial situation, you’ll come up with a plan that’s right for you.