Those who are drowning in debt often feel overwhelmed. Though many opt to declare bankruptcy or to default on their loans, there are other debt solutions that can allow you to pay off debt easier and faster. Consolidating debt is one of those options.
What Are Debt Consolidations?
Consolidating debt is the process of transferring multiple debts to one source like a loan or credit card. It provides a number of benefits, including lower or fixed interest rates and the cconvenience of servicing only one loan. It should be noted that not all debts can be combined into a consolidate debt loan. Mortgages, for example, cannot be consolidated.
How Can I Consolidate My Debt?
There are several different options for consolidating debt.
- One way to consolidate debt is to transfer balances to a credit card. This is only worthwhile if the card to which you transfer debt has a large credit limit and a low balance transfer interest rate. Before you choose to transfer to a credit card, it’s essential that you make sure it will actually save you money in the long run.
- You can also consolidate debt by borrowing against the equity in your home using a home equity loan or a home equity line of credit. There are usually lower interest rates and higher borrowing limits associated with home equity loans and credit lines, but this option does require some caution. If you fall behind on your payments, you face home foreclosure.
- To consolidate debt loans are available with the sole purpose of combining debts. Sometimes they are offered by major banks, but are more commonly available through non profit debt consolidation companies.
- You can also borrow from your life insurance. Typically, you can borrow up to the cash value of your loan and use the proceeds to consolidate debt. As long as the loan is less than the cash value of the policy, most insurance companies won’t require you to make payments.
- A last resort method is to borrow from your retirement plan. If you don’t repay within five years, it is considered an early withdrawal and is subject to penalty and income tax.
It is important to note that consumers usually need acceptable credit ratings and sufficient income in order to demonstrate that they will be able to manage a loan in order to qualify for a consolidate debt loan.
Who Can Help Me Consolidate Debt?
To consolidate debt loans are available through government licensed and bonded debt management programs. These debt consolidation companies can often discount the amount of the loan and can provide coaching and assistance in the debt relief process.