What should you do if you find yourself overburdened with credit card debt and you are having trouble keeping up with all the payments? It may be time to consider debt consolidation to make your debt easier to manage, easier to track, and to potentially lower your monthly payments while you get back on track. I am a huge proponent of paying off your debt rather than just filing bankruptcy, so debt consolidation is something I preach about quite often. When I was in debt up to my eyeballs, I did all sorts of balancing acts to consolidate my debt to get it paid off, so I figured I could post about some to maybe help some readers out.
A big selling point for consolidation of debt is to reduce the number of bills coming into your house to a more manageable level. Rather than getting 4 credit card bills, all with their own balances and minimum payments, you can consolidate down to 1 (or 2, at most) bills that you can then make bigger payments on. Wouldn’t it be nice to have one bill that you pay $150 on rather than 4 bills with 4 separate payments? Thought so. Doing this also lets you see any progress you make on that singular debt, so it’s kind of a no-brainer just from the “encouragement” perspective. But how do you consolidate your debt? Well, there are a few different options.
1. Home owners can take out a home equity loan, which borrows against the value of their home, to consolidate their debt. By doing so you are basically putting your house up as collateral for the loan, so be sure to don’t default on payments. Since interest on this loan is tax-deductible, it is often a smart way of consolidating any credit card you may have built up.
2. Home owners can also do a “cash-out” refinance on their homes. This allows owners to refinancing and take some of the home value out to pay off their bills.
3. People with pretty decent credit could possibly open a new line of credit with a much lower interest rate and roll their debt onto that card. Granted, if you are in debt so bad you need to consolidate it, new credit may be difficult to obtain. But it is definitely something to keep in mind as you are looking at options, and credit cards are great for this because you don’t need to put anything up as collateral for the loan.
4. Watch for special offers of 0% interest balance transfers from an existing card. This is one of the most common ways of consolidating debt, and something I did quite frequently when I was working on paying off mine. I did many, many transfers over the years it took me to pay off the debt, but the effort was worth it because at 0% interest, I paid it off quicker.
5. Apply for a personal loan from your bank or credit union. Watch that interest rate to be sure it’s lower than what you pay now on your debt, but sometimes credit unions have great loan rates available for borrowers.
6. Borrow from your retirement money. I don’t recommend this at all, but for some people it may make sense. If you have a 401(k) plan, you can borrow against it. Keep in mind you cannot borrow money for retirement, so be really sure of what you are doing before signing on the dotted line.
7. Borrow money from a family member. This is a touchy subject for many, and I honestly would recommend against it unless the money you receive is a gift of some sort. Money issues can really pull a family apart, so be sure you know what you are getting into before agreeing to anything. If you know for sure you can pay off the amount borrowed in a reasonable amount of time, a no or low-interest loan from a family member could be feasible.
8. Contact a debt consolidation company. These can definitely be pretty shady, but I do know someone who used the NFCC, the National Foundation for Credit Counseling, to consolidate and pay off her debt. Organizations like this contact your creditors for you, negotiate payment settlements, and then set you up with a single monthly payment to pay towards the negotiated amount.
No matter the method, the most important thing you can do today with your debt is to get rid of it. While I find no problem with the responsible use of credit, carrying debt around can really limit your life and lifestyle. You can check out my previous series on getting out of credit card debt for more tips on getting that monkey off your back, and good luck to you on doing so. Debt be gone!
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