Getting into debt is hard, but getting out of debt is even worse. Especially when you have multiple creditors, payment amounts & dates. Does this sound familiar to you and does it feel like you’ve lost control? Then it’s time to think of getting some help in the form of debt consolidation. This is a strategy to get all (or most) of your debts in one, monthly, payment. This can save you money (only 1 interest rate instead of several), get out of debt faster & give rest. Sounds good right? Check out your 4 options.
Read: No-Credit-Check Loans: Consider These Alternatives First
5 Best Debt Consolidation Options for You
There are several kinds of debt. For example: credit card debts, student loans, or hospital bills. That’s why it’s important to know which option is the best option for you.
1. Balance Transfer Credit Card
If you want to pay your debt via a balance transfer credit card, you need to get a card whose limit is high enough to pay all your debts and an APR low enough that you’re not paying too much interest. Fortunately, there are several credit card companies that offer a 0-percentage interest for a set period (1 to 18 months).
Paying off your debt via a credit card is a great way if you can repay your debts in this zero-interest period, otherwise, you’ll get even more debt. Check how long it will take to consolidate your debt with a ‘balance transfer credit card calculator’ and see if this is an option for you. If not, don’t give up hope, there are more solutions to get out of debt.
2. Home Equity Loan
If you own a home, leveraging your home equity might be a viable debt consolidation option. By appraising your home and discovering it’s worth more than your remaining mortgage balance, you can access this equity. A home equity loan allows you to consolidate your debts into one manageable loan. It’s important to note that this option is best suited for those with a strong credit history. And should only be considered if the interest rates are favorable. This method can streamline your payments and potentially reduce the overall interest paid on your debts.
3. Personal Loan
Opting for a personal loan can be an effective debt consolidation strategy if you qualify for a loan with an affordable interest rate, secure sufficient funds to consolidate all your debts, and negotiate a feasible payment plan with the lender. One of the advantages of a personal loan is that it doesn’t require collateral for approval, and it offers fixed rates and payments, which simplifies budget management. However, a significant drawback is that obtaining a low-interest personal loan typically requires excellent credit. If your credit score is not up to par, you might end up facing rates as high or higher than those associated with credit cards, potentially diminishing the financial benefits of consolidation.
4. Debt Consolidation Programs
If you’re hesitant to take out a loan or use a balance transfer credit card for paying off your debts, debt consolidation programs offer a viable alternative. Through these programs, you’ll collaborate with a credit counseling agency to develop a feasible plan for paying off your debts. Once your creditors approve this plan, you’ll make regular payments to the agency, which then distributes the funds to your creditors on your behalf.
This arrangement allows the agency to handle the complexities of distribution, while you remain informed with all the billing details. This ensures you have a clear understanding of your financial progress and know exactly when you’ll be debt-free. These programs are often referred to as Debt Relief Programs or Debt Management Plans, and they can provide a structured and transparent path to achieving your financial goals through effective debt consolidation.
5. 401(k) Loans
If you are looking for another method to consolidate debt and have accumulated savings in your 401(k), considering a 401(k) loan might be an option. This type of loan allows you to borrow against your retirement savings to pay off high-interest debts. It’s essential to proceed with caution, as tapping into your 401(k) can impact your future financial stability.
When you take a 401(k) loan, you repay the loan plus interest back into your retirement account, effectively paying the interest to yourself. This setup maintains the integrity of your retirement funds while utilizing them temporarily for immediate debt relief. However, it’s crucial to understand that failing to repay the loan can result in taxes and penalties, should you leave your job or fail to meet the repayment terms. Thus, this can serve as a debt consolidation tool, it should be considered carefully within the broader context of your long-term financial health and retirement planning.
When you have debt, it’s important to think about your next steps and do your own research. Especially, when you want to get out of debt & get peace of mind.