Juggling several loans or credit card payments is overwhelming. Remembering how much is due and when its due is mentally taxing. You’re likely tired of this routine and want to find a solution. Here are some low-risk and high-risk debt consolidation methods.
1. Get a Personal Loan
You might wonder why you’d make a new debt to pay off existing debts. It sounds counterproductive but it’s actually not. For example, you might have four credit cards with a combined interest rate of 80 percent. And in total, you’re paying more than $350 per month in credit card payments. It’s possible to apply for a personal loan with a lower interest rate. Plus, your monthly payment for the loan can possibly total less than the $350 per month you’re currently paying.
You’ll have an easier time getting a low-interest rate if you have good credit. But even if your credit isn’t great, you still options for a personal loan. Banks, credit unions, and online lenders are a good place to start. For example, Americor Funding is an online lender that specializes in providing personal loans.
2. Use a Balance Transfer Credit Card
Some credit card companies offer special deals for balance transfers. You can often get a zero percent interest rate on balances that you transfer from other cards. For example, say you have three credit cards totaling $800. You could transfer all three balances to the one balance transfer card. The benefit is you’ll have zero interest for a couple of months. And if you repay the debt before the promotional period ends, you can avoid all interest.
You’ll need a card with a big enough limit to cover all of your debts. This might pose a problem if your credit isn’t great. If you can’t get a card with a limit that’s high enough, you’ll have to choose another option. Also, keep in mind that some cards charge extra fees for balance transfers.
1. Get a Home Equity Line of Credit
A home equity line of credit allows you to borrow against your home. The lender gives you access to a line of credit, but you have to use your home as collateral. The benefit is this is a secured loan. In most cases, secured loans have lower interest rates than unsecured loans. The downside is you risk losing your home if you’re unable to repay the debt.
2. Get Money from Your Retirement Account
Do you have an employer-sponsored 401(K) or an IRA? If so, you can possibly borrow or withdraw money from the account. No credit check is required to remove money from your retirement account. So if you have bad credit, this is possibly a good option.
Something to consider is that borrowing or withdrawing from a retirement account will reduce your savings. You also might have to report the money as income on your taxes. You could also get hit with an early withdrawal penalty fee. Because of the possible cons, you’ll probably want to try other methods first.
3. Turn to Family and Friends
You might have a family member or friend who can provide a helping hand. But proceed with caution in this situation. Borrowing money from within your social circle has pros and cons.
The pros include not needing to pass a credit check. Since you’re not borrowing from a financial institution, a credit check isn’t necessary. You also won’t have to complete an application or wait weeks for an answer. Unless you’re asking for a huge amount, anyone in your social circle will probably decide fairly quickly if they can help. They might even loan you the money without charging interest.
The cons include possibly damaging a good relationship. Failing to repay the loan could drive a wedge between you and the lender. And by not repaying the money, you could put the other person into a financial bind.
Is Debt Consolidation for You?
Consolidating your debt can take some weight off of your shoulders. But it doesn’t help you understand how you got into debt in the first place. That’s a problem you need to address. No matter which consolidation method you choose, make a plan to avoid further debt.