Debt consolidation allows consumers to combine their existing debts into a single, lower interest loan. It pays off all outstanding balances, and the individual then only has to repay the loan amount rather than several separate debts each month. Learn about the four main types of debt consolidation loans below to determine which will work best for you.

4 Debt Consolidation Options

1. Traditional Debt Consolidation Loan

In a standard debt consolidation loan, a bank or other financial institution combines your debts and pays them off. Then you pay the lender back via single monthly payments. When shopping for this type of loan, look for the lowest interest rates possible, and choose a lender who offers a manageable monthly repayment amount. Also, keep the length of the repayment agreement in mind so you'll know how long it will take to pay off the loan and what your ultimate financial commitment will look like.

2. Personal Loan

A personal loan is one that you take out in your name to pay off existing debts. Personal loans are unsecured, so you don't have to provide collateral. The decision to approve or deny an application is based on credit history and current income. Look out for interest rates when seeking personal loans since they can be significant, especially if you have less-than-stellar credit.

3. Home Equity Loan

A home equity loan does require collateral: the amount of your home that you own outright after accounting for debts. Most people who qualify for this type of loan have substantial equity in their property and solid credit. The interest rates tend to be lower than those for other types of loans.

4. Balance Transfer

Credit card companies often extend a limited-time offer of little or no interest to new customers, so many take advantage of this opportunity to transfer several account balances to a new card. When choosing this option, budget accordingly to pay off the balance before the higher interest rate kicks in; in most cases, this is around the six-month mark.

Donald L. Spafford, Jr., Attorney at Law, is a bankruptcy attorney who will help you find the right debt consolidation option for your financial situation. With more than 30 years of experience, Attorney Spafford represents clients throughout the Honolulu area. In addition to bankruptcies and debt relief solutions, he offers legal counsel in business and commercial law cases. Call (808) 532-6300 or visit him online to schedule a free initial consultation.