How To Consolidate Your Debts

The average person has more credit card debt than he can handle. Unfortunately, due to interest rates and higher minimum payments, if a person only pays the minimum allotted payment on his credit card, it can take him years to pay off his debt. Additionally, if you have more than one credit card, it can be very difficult juggling different interest rates, payments, and payment dates.
 
A consolidation loan can help to handle all of these problems. Rather than fighting to make ends meet, a consolidation loan will allow you to make one payment to further your goal of removing your debt.  Following is a list of options you have when attempting to consolidate your debt into one payment.

  1. Credit Transfers - Transferring balances on your credit cards can make it easy for a person to save money on his interest rates and balances. People receive credit card offers every day. These offers allow for an extremely low interest period for a set amount of time. If you are able to transfer some of your debts to these cards and pay off the debt in the free or low interest period, then this is an excellent option. Generally you are given low or no interest for six months to a year. If you can pay your card off in that time, then that's a lot of money you have saved when you would have been paying interest. However, if you will not be able to pay your card off, you might not want to bother switching unless the card offers a standard interest rate that is much lower than the cards you are currently using.
  2. Home Equity Loans - A home equity loan allows you to refinance your home. When you do this, you are able to borrow on the equity of the home so that you can pay off any extra debt that you might have. Home equity loans have positives and negatives that need to be addressed. The biggest possible negative is the payment itself. If you are not able to make the payment for whatever reason, your house is the collateral for the loan. This means that if there is a problem that prevents you from keeping up with your payment, you could end up foreclosing on your house. However, if you get a loan for what your house payment previously was, or a modest amount higher, then home equity loans can be a good way to pay your debt off quickly.
  3. Borrowing from your Bank or Credit Union - If you are a member at a credit union or a bank, you might find that they have special loans that are just for members of their institution. If you have the ability to transfer all or the majority of your debt to one payment and have a lower interest rate, you should definitely take it. Through a credit union or bank, you may be able to get a loan for the entire amount that you owe various lenders. Then you can pay the lenders off and only have to deal with one payment per month, to your bank or credit union for the loan you received. One payment is much easier to pay off and often has less interest than multiple payments that are scattered among lenders. You can pay in bigger chunks and that can sometimes lead to better interest rates.
  4. Borrowing from your Retirement Fund - If you have 401(k) or another type of retirement plan, you might find that you are able to borrow loans against what you have available for retirement. This should only be used as a last resort though, as the interest is often high and can lead to you having a smaller paycheck or a smaller retirement check when the time comes to pay this loan back.
  5. Debt Management - If you are absolutely serious about removing your debt but do not want to switch your current debt to something new, then the answer for you might be debt management. A debt management counselor can work with your credit card companies to remove late payments and to lower interest. Rather than paying large payments to numerous credit card companies, you will pay one monthly fee to the debt management company for a set amount of months in order to get your bills paid off.

 

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