If you have many credit cards with debt on them life can be complicated. Outstanding debt can take over your life- depriving you of things that you would have otherwise liked to do with your money. It often takes a long time to pay these debts off. Some people moreover have debt on a large number of cards, for instance seven different cards. But, despite seeming like a daunting task, debt consolidation is possible. It will take some time to consolidate and pay off your debt, but there are a few ways to consolidate debt that you should explore in order to get out from under debt.
Use Debt Consolidation
Debt consolidation is a one of the most efficient ways to consolidate debt. This involves procuring a loan to repay all your outstanding debt so that instead of several high interest debts you have just one loan to pay off. High interest credit card debt, education loans and outstanding utility debt can be included in this loan, while mortgages cannot. Debt consolidation can be done by:
- Major Banks
- Non-profit debt consolidation companies
- Credit Union
It is a good idea to compare several debt consolidation loans before you decide on one as sometimes debt consolidation companies charge high fees in order to consolidate debt and this may add to your existing debt. However, banks or credit unions have lower interest rates on loans and lower fees. While you do need to demonstrate an ability to pay back your debt consolidation loan and steady income, getting a debt consolidation loan is fairly uncomplicated. Your debt consolidation agency will pay off all your debt on your behalf and you, then, will only have to pay one loan off at a lower interest rate than your credit cards.
Bank on Your Home
If your own your own home, use the equity you have on your home to pay off your outstanding debt. You can borrow, with a home equity or a line of credit, borrow up to 30% of your home’s value. Home equity loan and a home line of credit is a way to unlock the value in your home to solve debt issues. A home equity loan is a close-ended account that has to be repaid over a certain period of time while a home line of credit is an open-ended account like a credit card against which you can repay and borrow against. Home equity loans tend to have higher borrowing limits and low interest rates. This is beneficial as interest rates on home equity or a line of credit is way less than APRs on credit card balances. However, using the value of your home to pay loans does have its risks. If you forestall on payments you could put your house at risk. You may end up with home foreclosure, putting you in a worse position than before.
Borrowing from a Life Insurance Policy
Although this should not be your first choice, borrowing against a life insurance is a viable and preferable option than being bankrupt. You can borrow the cash value of your life insurance and use it to repay your high interest debt. You have to consider, though, that there is an interest on this loan (like any other loan) that needs to be paid at regular intervals. Remember if the loan is not repaid then you will no longer have life insurance for your loved ones after death.
Balance Transfer to other Credit Cards
If you have a card with a big credit limit or are being offered one, consider transferring any outstanding debt to the one with a higher limit. Most companies that you consider moving to will offer you a low balance transfer interest rate, therefore by moving debt you will be saving money. By saving on interest, you may be able to pay debt back sooner.
Borrowing from Retirement
Remember that over all your working years, you paid into your retirement? You can get an advance on this retirement money. But, this really should be a last resort option because the amount has to be paid back over five years. Any money that is not paid back is considered early withdrawal and the amount is subject to income tax and penalty. If you retire the loan must be paid in 60 days or early withdrawal penalties will apply.
What’s Negative about Consolidating Debt
Debt consolidation can provide you with peace of mind and better credit ratings, but each has its benefits and harms. Know the benefits and harms of the debt consolidation method you choose and be sure to pick one that will get you out of debt rather than one that will push you deeper into it.
It is good to know about the several ways to consolidate debt as high interest debt can destroy your lifestyle. But, it is only viable if you are disciplined enough to pay off any debt consolidations as well and you make considerable effort to change your habits to pay off all debts.