Debt consolidation means gathering all the unsecured debts that you are currently paying off into one monthly payment. An effective debt consolidation plan should feature lower interest rates and lesser monthly payments.
If you are having a hard time keeping up with your debts with different deadlines, interests, and minimum monthly payments, consolidating your debt would be the best option for you. Here are five ways by which you can consolidate your debt:
Debt consolidation loan
This method involves taking out a loan with low interest to pay off all your debts; then you begin to pay off the loan in a single monthly payment. You can approach your bank, credit unions, or commercial finance agencies to give you a large loan with interest that is significantly lower than that of your debts.
You can either get a secured or unsecured loan. With a secured loan, it is attached to collateral such as a house or car while an unsecured loan is one that is taken out without having collateral.
Fast cash loans are an unsecured loan that you can get from lenders if you need funds to make a payment urgently. This type of loan usually has an approval period that is less than 24 hours that offer flexible repayments. This is a great option to get on top of your debt fast and to start saving money straight away.
Get a no-interest credit card
Most credit card companies offer 0% interest promotions on their cards for the first 9 to 21 months. You can take advantage of this by transferring your debt balance into the credit card and paying it off before the promotional period expires. This way, you can pay off the principal debt easily without worrying about the interest.
However, you should only use this method if you have the means to pay off your debt quickly as these companies usually charge exorbitant interests after the promotional period elapses.
Get a home equity loan or line of credit
If your house has a substantial amount of equity, you can use it to get a loan or line of credit. A home equity loan is a close-ended loan in which you borrow an amount of money at once and then begin to pay it in monthly installments. On the other hand, a home equity line of credit is open-ended, you borrow money and pay it off to borrow again.
These methods offer the lowest interest rates, which help you to save money. However, it also has the most risk as defaulting on a payment can lead to foreclosure.
Borrow from life insurance
Although this method is not ideal, it is way better than bankruptcy. You can take out an amount of money from your life insurance policy as long as the loan is lesser than the amount you have saved up in the policy. However, be sure to pay it back so as not to leave your family with an empty insurance policy.
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Use a debt management program
If your debt is more than half of your gross income and you are having difficulties in making your monthly payments, then a debt management program is your best bet. With this method, you are not getting a loan; rather, credit counseling agencies would negotiate with your creditors to reduce interest rates, monthly payments, and waive extra fees. You would make a single payment to the agency, and they will then distribute the money to your various creditors as agreed.
Please note that debt consolidation does not mean you are free of debt, so do not make the mistake of accruing more debt. You can secure your finances by developing good spending habits and adhering strictly to a budget.