Getting into debt is hard, but getting out of debt is even harder, especially when you have multiple creditors, amounts and payment dates. Does this sound familiar and do you feel like you’ve lost control of your finances? Then it may be time to consider getting help in the form of debt consolidation. This is a strategy to combine all (or most) of your debts into one monthly payment. Debt consolidation can save you money, get you out of debt faster and give you a break. It’s a good idea, right? Check out these 4 options.
Balance Transfer Credit Card
One option for getting out of debt is to get a balance transfer credit card. Note that there are some aspects to this option that you need to consider before purchasing this credit card. If you want to pay off your debts with a balance transfer credit card, you need to get a card that has a high enough limit to pay off all your debts and a low enough annual interest rate that you don’t pay too much interest. Fortunately, there are credit card companies that offer a low or no interest rate for a set period of time (from 1 to 18 months). Paying off your debts with a credit card is a great way to go if you are able to pay off your debts during this zero interest period, otherwise you will be putting yourself in even more debt. Check out how long it will take you to consolidate your debts using a “credit card balance transfer calculator” and see if this is an option for you. If not, don’t give up hope, there are other ways to get out of debt.
Home Equity Loan
If you are a homeowner, this option may be right for you. If you value your home and it turns out to be worth more than what you still have to pay for the mortgage, you have home equity. You can take out a (private) mortgage on that equity and consolidate your debts.
A home equity loan is a good way to turn the equity you have built up in your home into cash, especially if you are using the money to improve the value of your estate. Always keep in mind that you’re putting your home on the line – if real estate values drop, you may find yourself paying more than your home is worth. Note: this option is only available if you have a good credit history and is only recommended if the interest rate is affordable.
This is a good option for debt relief if you can get a loan at an affordable interest rate. The advantages of a personal loan are that you do not need to use collateral to be approved and the rates and payments are fixed. The major disadvantage is that you must have outstanding credit to qualify for a low rate personal loan. Otherwise, it could cost as much or more than a credit card. Also, a personal loan will do you more harm than good if the loan you’re considering has a triple-digit interest rate and you have limited or uncertain options for paying it off.
Debt consolidation programs
Understandably, you may not want to get a balance transfer loan or credit card to pay off your debts. Fortunately, there are options for that too. In a debt consolidation program, you’ll work with a credit counseling agency to come up with a realistic plan to pay off your debts.
The process of consolidating two or more loans into one larger debt is known as debt consolidation. Consumers who have a large amount of high-interest debt often choose this option. Credit card debt, car loans, student loans, medical debt and other types of loans are often combined into one loan.
When creditors agree to this plan, you pay a certain amount each month to the agency, which then transfers the money to your creditors. The agency will do the hard work for you and you will receive all the payment information, so you will have a good idea of what is happening to your finances and when you will be free of debt.
Consolidating your debt does not guarantee that you will never be in debt again. If you have ever lived beyond your means, you may do so again once you are debt free. To avoid this, set a realistic budget and stick to it. You may also want to consider getting a financial advisor to help you stick to your budget.