Seven Possible Ways to Consolidate Debt For People With Bad Credit

A debt consolidation loan is a great option for people who want to pay off their debts and achieve financial freedom. However, if you have poor credit, will this still be a viable option for you? This article will provide options based on experts’ opinions.

Let us start with a short discussion about Debt Consolidation Loans. 

A Debt Consolidation Loan is a personal loan that you can use to pay off several debts, such as student loans and credit cards and you repay back the loan with one single monthly payment. These loans are usually fixed rate loans, with a repayment term of up to 60 months (5 years). 

One of the notable benefits of a debt consolidation loan is that you can pay off your high interest credit card balances, payday loans and other debts with a low interest loan, thus making it easier for you to improve your financial situation and get out of debt quicker and in a more affordable way.

What if you have bad or poor credit? If your credit score is less than 660, you may find difficulty securing a personal loan for debt consolidation. If you however qualify for one, you must be aware that the interest rates will be high. If your current average interest rate for all your credit cards and other loans are 25%, and you qualify for a debt consolidation personal loan with an interest rate of 30%, then this would really not be the option for you.

It is recommended that you check with your credit union. If you have been a member for a long time, you can tap this resource to borrow money to pay off your debts even if you have a poor credit. 

Here is a quick overview of the pros and cons of debt consolidation:


  • Quick and easy application
  • Opportunity to pay off high interest loans with a new, lower interest loan
  • In the event of payment default, a debt consolidation personal loan can be discharged in a declaration of bankruptcy
  • Less fees compared to home equity loans


  • A good credit score is a requirement to secure a loan
  • Shorter repayment terms. This means higher monthly payments
  • HIgher interest rates compared to home equity loans

Now that you have an idea that debt consolidation personal loans usually cater to people with good credit, let us now discuss the alternative ways of debt consolidation with bad credit.

Listed below are seven (7) possible ways to consolidate debt even if you have a low credit score, and each will be discussed including its pros and cons.

  1. Debt Management Plan
  2. Home Equity Loan
  3. Home Equity Line of Credit (HELOC)
  4. Cash out Refinance
  5. Balance Transfer
  6. Debt Settlement
  7. Filing of Bankruptcy

Are you OK removing monthly interest payments?

#1 Debt Management Plan 

With a debt management plan, you are going to be working with a consolidation company and/or credit counselor who will negotiate with creditors on your behalf for lower interest rates. They will set up a repayment plan. All your credit cards will be closed, which would be a good thing, so you cannot add more debt. You will be paying one fixed monthly amount to the consolidation company who will distribute the payment to your different creditors.

One benefit of this option is that credit scores have no bearing when applying. However, all  your accounts will show that you are enrolled in the program and may cause some negative marks on your credit report. You will not be able to open or apply for new credit until after you are done with the program.

You must understand that the consolidation companies charge a monthly fee for their service.


  • Accepts borrowers with poor credit
  • Chance of having lower interest rates
  • One monthly repayment amount


  • You get charged a monthly service fee
  • Negative impact on credit report
  • You cannot open a new line of credit until after you are done with the program

#2 and #3 Home Equity Loans and Home Equity Line of Credit (HELOC)

This is an option for you if you own your home and have built up enough equity in it. With Home Equity loans, you borrow money against this equity. This is sometimes called a “second mortgage.” Interest rates are lower with longer repayment periods. A Home Equity Line of Credit (HELOC), on the other hand, allows you to borrow (withdraw) against your home equity, repay, and borrow again when the need arises. With home equity loans, you receive the money as a “lump sum” which will be paid back during a certain period of time, with fixed interest rates. HELOC however, works like a revolving line of credit, very similar to a credit card, but with variable interest rates.  

A home equity loan or HELOC offers low interest rates, however, you must have a FICO score of 660 or higher. 


  • Low interest rates
  • Interest paid may be tax deductible
  • Longer repayment terms of up to 7 years
  • Opportunity to pay off high interest debt with a low interest loan
  • Low monthly payments


  • Secured debt (you use your home equity as a collateral for the loan)
  • Should you default on your payments, your home will be at risk for foreclosure
  • Not eligible for filing of bankruptcy

#4 Cash out Refinance

This option is similar to home equity loans. This works by having a lender refinance your primary mortgage and offer you up to 80% of the value of your home in cash. You can then use this money to pay off several smaller but higher interest debts. You will now only have one single monthly payment to one lender.

A benefit of this option is the lower credit score requirement. FICO scores as low as 620 may qualify for this type of loan.


  • You may qualify for a loan even if your credit score is as low as 620
  • Low interest rates
  • There is a possible chance for interest payments to be tax deductible
  • Refinancing may get you a lower interest rate on your original mortgage


  • There are upfront fees 
  • Not eligible for filing for bankruptcy
  • You risk losing your home if your default on your payments

#5 Credit Card Balance Transfer

This options involves moving your high interest credit card balances into a new credit card with a lower interest rate. There are banks that even offer a 0% interest introductory period of up to 24 months for balance transfers. This introductory period at 0% interest will allow you to significantly pay down your debt. If you qualify for the 0% interest introductory period, you have to make sure that you repay your entire balance before this period expires. You have to understand that any balance left after the introductory period will be subjected to regular interest rates.

To qualify for this option, you are required to have at least an average credit score. If you have bad credit, you must look at other options. 


  • Opportunity to move high interest debt to a new, low or no interest card
  • Helps pay off debt faster 
  • Opportunity to qualify for a 0% interest introductory period of up to 24 months.


  • Requires average or good credit history to qualify for a low or no interest rate introductory period
  • Any balance left over after the introductory period will be subjected to the regular interest rates
  • There is a one time transfer fee

Do you want more money at the end of each month?

#6 Debt Settlement

Debt settlement is a process wherein your debt is charged off. You need the assistance of a debt settlement company to secure a settlement with your creditors. They will negotiate to bring down the debt to 40% to 60% of your original balance. All your accounts will be forwarded to collections. 

Repayment must be the full amount or you can pay monthly up to 48 months. Your creditors may sue you if they have to wait for a long time to get their money back.

With debt settlement, you may only need to pay a portion of the original amount you owe, but you need to understand that you will create a big impact on your credit score. You will also be charged a fee by the debt settlement company. This may be as much as 15% of your original balance. 


  • Credit score is irrelevant if you choose to go this route
  • You only pay back a portion of your total balance
  • No interest
  • You have the option to pay the balance in full or pay it in installments for up to 48 months


  • Your credit score will drop significantly
  • It will take years for your credit to recover from a debt settlement
  • High fees charged by debt settlement companies
  • You cannot qualify for new lines of credit 
  • Possibility of creditors filing a lawsuit against you

#7 Bankruptcy

The last and least popular option to free yourself of debt is Bankruptcy. You may qualify for this option if you are in a serious financial  dilemma with no means to meet your monthly repayments. Bankruptcy will surely cause your credit score to plummet and this mark will remain on your credit report for seven (7) years. 

Your debts will be discharged if you qualify for a Chapter 7 Bankruptcy. If however, you fail to quality for a Chapter 7 Bankruptcy, you may be forced into a Chapter 13 Bankruptcy where you will have to adhere to a court mandated repayment plan. In both programs, you will need to speak with an attorney to represent you. 


  • Debts may be discharged
  • No more collection calls and letters
  • Debt is forgiven if you qualify for Chapter 7 Bankruptcy


  • Significant drop in credit score
  • Not qualified to open new lines of credit or loans for quite a period of years
  • Student loans cannot be included in Bankruptcy
  • Chapter 13 Bankruptcy will require you to pay off all your debts through a court mandated repayment plan. 

Lenders that cater to consumers with bad credit

Debt consolidation loans are not easy to secure if you have bad credit. Most lenders would require an “average” credit score of 620 to 640. However, if you spend time doing your research, you will find some lenders that accept borrowers with credit scores as low as 580. Advant is one of those lenders that you can check out. 

Debt consolidation loans with bad credit will always come with high interest rates. Do your math and find out if you will be actually saving any money in interest if you proceed with a debt consolidation loan. 

Be in the know.

You are determined to work your way to being debt-free. Follow these simple steps – Weigh out all your options; shop around for lenders who would provide the best offer; always read the fine print; stay away from companies that charge upfront fees and other charges; and be vigilant to spot and avoid debt consolidation scams.

Debt Consolidation Options For People With Bad Credit

When you find yourself deep in debt, finding a solution to your financial dilemma can be difficult. Taking out a loan to consolidate your debt will require you to have a good credit score, which you do not have at the moment. However, if you do a thorough research, you can still find some debt consolidation loans that cater to people with bad credit. It is noteworthy to understand though that these may not be as favorable compared to those with better credit scores. Be patient and avoid taking out a bad loan out of desperation. This will only put you into deeper debt.

What are the options available? What steps should you take? 

  1. Compare Debt Consolidation Offers from Different Lenders offers a loan comparison service. It lists lenders, their terms, interest rates, and credit score requirements, among other things. This service would allow you to identify lenders that offer loans based on your credit score. Check the terms, interest rates and fees/charges if any.

You must understand that you may be subjected to higher interest rates, sometimes with an APR of up to 36% in some cases. You may be given a long repayment term of up to 60 months. This would give you a lower monthly payment, however, considering the high interest rate, you will end up paying more in interest for the duration of the term.  If the interest rate is higher than what you are currently paying for now, then debt consolidation is not an ideal option.

2.  Transfer Credit Card Balances to a New Card

For those with good credit standing, transferring balances to a new credit card with an introductory period offer of  0% interest is a good deal. However, if you have bad credit, you may find it difficult to avail of this option. However, you may still do a balance transfer. Determine which of your credit cards have the lowest interest rate. If you have available balance on that, you may transfer the balance from your higher interest rate card into the lower interest rate card. Combining your balances will make it easier for you to pay down your debt. You will also have fewer payment due dates to manage with this strategy.

3. Look into Peer to Peer Lending

This option takes advantage of crowdfunding, which means the money you borrow is sourced from individual investors. These investors will review your financial profile and they will decide whether to approve your application or not. If you get approved, the money may come from multiple investors, but you will only have one monthly payment. You can check with peer to peer lending platforms such as, and Upstart. You may be able to access a debt consolidation loan through them. They will present you with multiple options that you can choose from. 

4.  Tapping into your  home Equity is another option for debt consolidation if you have bad credit

Another option for debt consolidation if you have bad credit is to use your home equity as a collateral for a loan. Rates and terms will depend on the lender, and you may be able to borrow up to 90% of your equity. There are 3 different ways to secure a loan using your equity:

Are you ready to increase the money in your pocket?

  1. Home Equity Line of Credit (HELOC)

A home equity line of credit is a line of credit that uses your home equity as a collateral. Lenders will review your credit score and debt to income ratio before you get approved for a HELOC. If approved, your repayment term will consist of an “interest only” payments for the initial few years, followed by payments for the outstanding balance. 

B.  Second Mortgage

With this option, you are taking out a new loan based on your home equity. It is important to note that this is separate from your primary mortgage. You have to understand the risks associated with this option, as it comes with higher interest and default rates. 

C.  Refinance your mortgage

This option entails refinancing your mortgage into a new one, and do a cash out on the equity you have earned over the years. You may now use this money to pay off your other debts. A benefit of this option is that you can now “wipe out” your other several small debts and continue paying just one loan, that is your mortgage. To get approved for this option, lenders will be looking at your credit score, your existing debts and your income. 

As with all the other options mentioned above, you should always compare interest rates, repayment terms and monthly payments to determine which option would work best for you. Debt consolidation using your home equity is risky. Defaulting on your payments may face foreclosure on your home. 

Word of Advice: Beware of Debt Consolidation Scams

Yes, there are people who would try and take advantage of your situation. Practice diligence and only transact with reputable financial institutions and lenders. If you are asked to pay a fee upfront before applying, it is most likely to be a scam. Stay away from companies like these.

A Complete Guide to Consolidating Debt

Rewritten Title: A Complete Guide to Consolidating Debt

You have heard of Debt Consolidation probably from family or friends, and you are in a financial situation wherein you are seriously considering ways to get out of debt. If you are ready to make that big step towards financial freedom, debt consolidation may just be the way to do it.

What exactly is Debt Consolidation?

Debt consolidation is simply a process of combining multiple debts with different interest rates, amounts and due dates into one single large loan with one interest rate, one monthly payment, and one repayment term. This means less stress, less headaches, and fewer bills to worry about.

There are many forms of debt consolidation, each of them with distinct features, benefits and drawbacks. This article will help you decide which of the different options would work best for you.

Are you ready to increase the money in your pocket?

What are my options?

Option 1: Transferring all your current credit card debt into one single credit card.

This option will work for you if you are able to get approved for a card that offers a lower interest than the ones you are currently paying for. Some financial institutions also offer an introductory period of 0% interest using this option. A big help for you to pay down your principal loan amount! 

However, you should be aware of the one time transfer fee that is added on to your principal. This is usually in the range of 2% to 4% of your balance. If you qualify for the introductory period of 0% interest, you must take note of how long this period lasts. It is best that you pay off your entire debt before this period expires. All remaining balances will be charged the “regular” interest rate after the introductory period.

With this option, you have to practice financial constraint so as not to add new purchases on your credit card.  You don’t want to add more debt to what you currently owe. 

Option 2: Avail of a Home Equity Loan or Line of Credit

If you own the house you are currently living in, this may be a viable option for you. Home equity loans or home equity line of credit is when you borrow money against the equity you have built up in your home and use that money to pay off your multiple small debts. This kind of loan has a lower interest rate which makes repayment more affordable. 

What is the difference between a home equity loan and a line of credit? For equity loans, your debt is dissolved after the last payment has been made. With a line of credit, once you have paid off your debt, the money is made available for you to use again. 

Home equity loans and home equity line of credit are both secured loans, which means you use your home as a collateral to secure a certain loan amount. If you choose this option for loan consolidation, you have to make sure you do not default on your payments. If you do, you are at risk of losing your home.

Option 3: Secure a Personal Loan

A personal loan is an unsecured loan, meaning you are not required to have a collateral. You may use the loan to pay off all your credit card debt, or at least the higher interest rate ones so you will now only have one single monthly payment. Interest rates may vary and may be based solely on your credit score. If you have poor credit, it may be difficult to secure a personal loan.

Before you decide on this option, you have to make sure that you will be getting a lower interest rate compare to your current rate. It may be enticing to mind only one single payment every month, but make sure that you are actually paying down your debt and saving money on interest.

Option 4: Borrow from your Life Insurance or Retirement Fund

You have the option to borrow money against your retirement fund. It is just like “borrowing money from yourself,” because the loan you get will be out of the money you have already put away for retirement. You have to repay the loan amount plus interest though, because if you don’t then you will be subject to penalties and income tax.

You may also look at borrowing money against your life insurance policy. Some companies would allow you to borrow up to the total cash value of your policy and use that money to pay off your several smaller debts. When choosing this option, you are not required to pay back the loan (plus interest). However, you should know that the unpaid loan amount will be deducted from your death benefits. This may place your surviving family in a financial dilemma. 

Borrowing money from your Life Insurance or Retirement Fund may only be considered a last resort if you do not qualify for a personal loan, a new credit card or if you do not have any equity or assets that you can liquidate.

Are you OK removing monthly interest payments?

How do I get started? 

First of all, you have to do your own research. You must know how much you owe and how much you can afford to pay monthly to pay down your debt. With this information at hand, you will be able to determine the amount of money you need.

Check with reputable online lenders

Shop around for lenders with the best offer to meet your needs. There are many online lenders that you can contact to inquire about debt consolidation. Usually their websites offer a free assessment to check if you would qualify. You must take note that some may have small impact on your credit score.

The most reputable online lenders worth mentioning in this article are Avant, and Lending Club. Here is a brief overview of their features and offers:



  • Fast loan approval
  • Accomodates borrowers with low credit score


  • Higher interest rates
  • Corresponding fees for late payments


  • Loanable amounts up to $35,000
  • Competitive interest rates


  • Interest rates are not publicly published

Lending Club:


  • Loanable amounts up to $40,000
  • Competitive rates
  • Maximum repayment term is 60 months


  • Borrowers are thoroughly vetted

How will I determine which debt consolidation option is best for my needs?

Different borrowers, different needs so choosing a debt consolidation option should be one that would give you the best and most efficient way of paying down your debt. 

As mentioned above, first, you must determine the loan amount you need to pay off your debts. Getting the total balance across all your creditors will give you an idea of this.

You should know your credit score to determine the interest rate you qualify for. Ask yourself how much you can afford to set aside every month for repayment of the loan. You should also take into consideration the repayment term. Can you afford to pay off your loan in 18 months? 3 years or 5 years?

It is best to look at the fine print too. Be wary of hidden fees and other charges that may impact your decision. Do not sign anything until you have thoroughly read and understood the terms and conditions of taking out a loan. If something is not clear to you, ASK. 

So which is the best option? Weighing the pros and cons of each and every option, the most favored option is Home Equity Loans and / or Lines of Credit (for people who have home equity or other assets); next would be balance transfer or debt consolidation personal loans; and life insurance/retirement fund loans being the least favored option. 

Take note of the possible pitfalls of debt consolidation

Now that you know the different ways to consolidate debt, you should also be aware that there are certain pitfalls you should be careful not to fall into.

First and foremost, you must pay back the loan. Payments must be made on time, and avoid acquiring new debt as you are paying off your loan.

Be careful not to incur penalties and other charges associated with late payments. Be wary in associating with debt management companies and credit consultants. They charge a monthly fee for their service and that is added to your principal.

You should be aware that lower monthly payments would mean longer repayment terms. That would only mean you are paying more interest over time.

If you cannot make ends meet and you cannot afford even the minimum monthly payment, it would be best to look at other ways to resolve your financial situation.

The Final Word

Debt consolidation will definitely work for you to achieve a debt free life, if and only IF, you make changes in your spending habits. While debt consolidation may have some pitfalls, it is still a better strategy than filing for bankruptcy. 

What is the best way to consolidate debt?

What is the best way to consolidate debt? 

Having multiple credit card debt with different balances, interest rates and due dates can surely drive you crazy. Wouldn’t it be nice if you only had to deal with one monthly payment to settle your debt? This exactly what debt consolidation can offer you.

But what is the best way to consolidate debt? In this article, you will learn about the different ways to consolidate debt.

Before you go and jump into consolidating your debt, ask yourself these three important questions:

  1. How much do I owe?
  2. What assets do I have that I can I liquidate?
  3. What is my credit score?

You may have heard of a friend, family member or colleague who has consolidated their debt and now have a single monthly payment to pay off the large debt they have acquired. Debt management may help you conquer your debt and effectively manage your household expenses, however, you have to find out where to get a large lump sum loan to consolidate your debt and with all the options available, you have to determine which one would work for you best.

As mentioned, there are many options available to consolidate your debt, which will be discussed in this article. The best ones should be able to provide you with the following:

Are you ready to increase the money in your pocket?

  • Free consultation
  • Low or no “processing” fees or upfront payment
  • Minimal impact on your credit score
  • Easy, hassle free program enrollment
  • Provides a financial peace of mind
  • Offers a way to settle your debt in 3-5 years.

Let us now discuss the best ways to consolidate debt:

  1. Borrow money from family or friends

This is one way to consolidate your debt. Do you have a family member or friend who is financially well off to be able to lend you money to pay off your debt? If you do, are you comfortable to ask them for money?

If you decide to go this route, you should be willing to be sit down with them an lay out your cards. Let them know about the amount you owe, your budget, your proposed interest rate and monthly payment and how long it would take for you to pay off the loan. You have to be open and honest about your intent to pay them back and the manner by which you will do it. 

Consider these pros and cons of borrowing from family or friends:


  • No forms to fill, no screening
  • Low to no interest
  • Flexible payment terms
  • No negative impact on credit score
  • No origination fees


  • May damage your relationship with your family member or friend, especially when you default on your payment
  • Privacy issues. Letting a family member or friend to know about your financial situation can be a little uncomfortable.

Are you OK removing monthly interest payments?

Is this the best option for you?

Borrowing from family or friends to consolidate your debt may be the best option for you if you have someone with enough financial resources to help you out. Someone who is willing to lend you money, with little or no interest and to be understanding if you miss a payment due to an unforeseen event or emergency. Usually, repayment terms are more affordable with longer repayment period. 

2. Debt Consolidation using a Personal Loan

Applying for a personal loan for the purpose of debt consolidation is another option you may choose to manage your debt. This entails borrowing an amount of money from a bank or credit union which you will use to pay off several small and/or high interest rate debts. This will now provide you with a single monthly repayment amount with a fixed interest rate over an agreed period of time, usually ranging from 12 to 60 months. 

Personal loans are unsecured loans, which means you do not need to provide a collateral to borrow a specific amount. Defaulting on a personal loan will not make you lose any of your assets, however, you may end up being sued by your creditor and in turn put a lien on you salary. Interest rates for this kind of loan may vary according to your credit score and loan amount.  

The pros and cons of choosing this option are as follows:


  • One fixed monthly payment for the duration of the repayment term
  • There are lots of banking institutions and/or credit unions that offer personal loans so feel free to shop around to determine which one would give the best offer

Do you want more money at the end of each month?


  • Lending institutions thoroughly review an applicant’s financial background and their capacity to pay. 
  • Approval and interest rates will depend on your credit score

Is a Personal Loan a Good Idea for you?

After doing your research and weighing out all the information you have obtained, a personal loan is a good idea if you can secure an interest rate that is lower than the average interest of all your current debts. 

3. Home Equity Loans

Home equity loans are a secured type of loan wherein you borrow money against the equity you have on your home. Home equity loans offer the lowest interest rates, usually between 3% to 5% and have the longest repayment terms of up to 30 years. This would mean lower monthly payments compared to other options for debt consolidation.

Where do you find lenders that accept home equity? Home Equity lenders are usually banks, credit unions, mortgage brokers or online lenders. The amount and interest rate of the loan amount will depend on three factors – your credit score, the amount of equity you have, and your debt to income ratio. Some home equity loans have fixed monthly payments and interest rates while others have variable rates with a fixed repayment period. You can also opt to do a interest only payment up to the first 10 years of the repayment term.


  • Low and stable interest rates
  • Interest paid on the loan is typically tax deductible
  • Set payment schedule 
  • Credit card debt is resolved, credit score improves


  • You may risk losing your home if you default on your payments

If you think this would be a good idea for you, make sure that you own more than 20% in equity. Another important factor to consider is that once you have been approved for a home equity loan, you should make a commitment not to add more debt. Home equity loans are the most affordable option for you to get out of debt so you must exercise diligence in making your monthly payments on time and avoid impulse spending. 

4. Credit Card  Balance Transfer

Credit card balance transfer is another option you can look into. It works by transferring a high interest credit card debt into a new credit card with a lower interest rate. Credit card balance transfers usually offer an introductory offer of 0% interest for up to 18 months. This alone can help save you money and bring down your debt. However, you should be aware that you may be charged a balance transfer fee, usually in the rate of around 3% or your total balance. 

You can search online for banking institutions that offer low or zero interest credit cards. You can also contact your current creditors and ask if they can match the offer you received from a different bank. No harm in trying!

Are you ready to increase the money in your pocket?


  • Easier approval compared to personal loans. 
  • A zero percent interest rate during the introductory period can save you a lot of money and pay off your debt.


  • The zero percent interest rate is only for an limited time, hence the term “introductory” period. After this period, your interest rates revert to the lender’s usual interest rate. You must be aware that any debt unpaid after the introductory period will be subjected to regular rates.
  • There are transfer fees involved. 
  • It does not wipe off your debt, you only moved it to a different lender.

Is Balance Transfer a Good Option?

Balance transfer will work for you and help you save a significant amount of money on interest. That is, if you qualify for a low to no interest introductory offer. If you think you can pay off your debt before the introductory period expires, then this is a option you should consider. 

5. Setting up a Debt Management Plan through Credit Counseling

Credit counseling is another option for you to pay down your debt. Credit counselors speak with creditors on your behalf to get better terms such as lower interest rates and more affordable monthly payments. Credit counselors will set up a debt management plan which you will adhere to the letter. You still have the benefit of having to make only one monthly payment, however, this payment will be forwarded to your credit counselor who will distribute payments to your creditors. With this option, you are required to close all your credit cards, live on a budget, and repay your debt in 3 to 5 years.

Getting approved for a debt consolidation through this option is not a walk in the park though. Credit counselors can only do as much when bargaining for lower interest rates with your creditor, which means it still depends on the terms that your creditors will offer. There is also the issue of a debt to income ratio. If you make too much money, you may not be approved. On the other end, if you make too little, your credit counselor may advise you to file for bankruptcy instead.


  • The only requirement to avail of this option is that you should be earning enough income to cover your bills/payments
  • Not limited to credit card debt. Other types of debt such as medical bills, rent, unsecured bank loans, etc. are also accepted.
  • No minimum monthly payment
  • Repayment period is set at a maximum of 5 years


  • You can no longer use your credit cards or apply for new ones while under the program
  • There is a monthly service fee if you avail of this option.

When is this a good option for you?

Are you ready to give up your credit cards? Stick to a serious, workable budget? Do you want to benefit from lower interest rates and be debt free in 3-5 years? If your response is yes, then Credit counseling and Debt Management will most likely work for you. This would allow you to pay off your debt without having to take out another loan, and you get to have the guidance of a counselor to help you effectively manage your finances.

Do you want more money at the end of each month?

6. Take out a Loan against your 401(k)

Taking out a 401(k) loan is an option offered for those who have this through their work. You may borrow up to 50% of the amount you have already saved, however, you have to pay this back through salary deduction for a period of up to 5 years. 


  • There is not credit check required because you are borrowing against your retirement fund


  • You have to pay back the amount you borrowed with interest.
  • Defaulting on your repayments for your loan against your 401(k) may trigger taxes and penalties because this will now be considered as “income.”

Is this the best option for you?

Taking out a loan from your 401(k) is a good option for those who are still young and have decades to save money before retirement. If  you find that the salary deduction for your monthly repayment is affordable, then this may be the best option for you. 

7. Borrowing from your Life Insurance Policy

This is not a common option for loan consolidation. This involves borrowing against your life insurance policy. You can borrow up to the entire cash value of your policy and use the money to pay off all your current debts and then repay the amount back. However, with this option, you have the choice whether to pay back your loan or not. The downside of it is that if you don’t, your death benefits will be greatly reduced, or may not have any at all to leave to your surviving family.


  • If your priority right now is paying off your debts and having that peace of mind of being debt free, then this may be a good idea.


  • You may put your surviving family in a perilous situation if they will not be able to claim any life insurance in the event of your death.

When is borrowing from your life insurance policy a good idea?

This option is a good idea only if your policy has a significant cash value which will ensure your family’s survival in the event of your passing. If your family can cope with a reduced or no pay out of your insurance, then this may be an option you can consider. If you have to choose between this option and bankruptcy, borrowing against your life insurance policy will be the better choice if no other of the above-mentioned options are feasible. 

Do you want more money at the end of each month?

8. Debt Consolidation Through Payday Loans

Payday loans are high interest, low dollar amount loans that are required to be paid back in a short period of time. This is not a good choice when taking out a loan for debt consolidation. 


  • None


  • Has no advantages over the other above-mentioned options for debt consolidation
  • Expensive (high interest)
  • Risky – Can make your financial situation worse.

This is not recommended if your current cash needs are less than $1000. There are other options where you can ask for assistance for paying utility bills, buying food or paying rent.

Five Ways to Consolidate Debt On Your Own

Can You Consolidate Debt On Your Own? Yes, You Can!

Imagine having to pay off seven credit card balances every month. Different amounts, different due dates, different interest rates. That is definitely a mind-boggling task and it would seem you aren’t getting any of them paid off! Wouldn’t it be better to have to pay just one bill, once a month to pay off your credit card debt? Here are 5 ways by which you can consolidate your debt on your own without having to pay a debt consolidation company.

Credit Card Balance Transfer
This is an option wherein you can move all your credit card balances into one single credit card. That would mean one single payment every month. However, you must have a high credit limit to accommodate all your balances into a new credit card. If in case your credit limit is low, you can still take advantage of a credit card balance transfer by moving two or three high interest cards into a new card. Before you proceed with this option though, you have to make sure that you are getting a lower interest rate with the new card compared to the rates you are actually paying for currently. Do the math. If you find out that you will actually be paying more with this option, then look for other ways to consolidate your debt.

Are you ready to increase the money in your pocket?

  1. Home Equity Loan or Home Equity Line of Credit
    Both Home Equity Loan and Home Equity Line of Credit are secured loans that require a collateral, which is, your home equity. These kind of loans usually have a lower interest rate and a higher loanable amount. However, you must be aware of the risk of choosing this option to pay off your credit card debt. Since your home equity was used as a collateral, you may face foreclosure if you fall behind on your payments. Be careful if you go this route, and make sure you make payments on time.
  2. Debt Consolidation Loans
    Debt consolidation loans are personal loans solely for the purpose of consolidating and paying off credit card debt. Most banks and non-profit debt consolidation companies offer this however, there are certain criteria that should be met. First and foremost, you should have an excellent credit score to qualify for a low interest rate and longer repayment terms. Be careful in choosing a debt consolidation company though. They may charge some upfront and monthly fees that will be added to your loan principal. That would only mean you will be paying more. It would be best to talk to your bank first or seek out a credit union to avoid being scammed.
  3. Borrow from your Life Insurance Policy
    If you feel you have run out of options and you’re so close to declaring bankruptcy, you can look at borrowing money against your life insurance. Usually, you can borrow up to the cash value of your life insurance policy and use that money to consolidate or pay off your credit card debt. Even if your life insurance company won’t require you to pay back the loan, it would still be best that you do. This would be to ensure that in case of any eventuality, your surviving family will still be able to claim your death benefits.
  4. Borrow from your Retirement Fund
    Not a common way to consolidate debt is to borrow against your retirement fund or your 401K. There are certain downsides with consolidating debt with a 401K loan. First, the loan has to be repaid in 5 years. Can you assign a certain amount of your income to pay off your loan in 5 years? If not, then it will be considered an early withdrawal of your funds and you will be required to pay penalties and income tax. Second, if you leave your job, then the loan will have to be repaid in 60 days. Again, do you have enough money to do this? Borrowing against your 401K fund is risky and should be given lots of thought before choosing this option.
    The Downside of Consolidating Debts
    Consolidating debt is not the end-all to your financial situation. It is only a way to make repayments easier. All these options mentioned above have their own pros and cons and you should be aware of each and every one of them Always do your research and weigh out the options. Think about the risks involved, especially taking out loans against your life insurance or retirement funds. The key to making loan consolidation successful is to make your payments on time or you risk losing your assets.

U.S. News 2019 List of The Best Debt Consolidation Loan Companies

This list of lenders and lending partners who offer personal loans for debst consolidation was compiled by U.S. News. Research was done and was based on the company’s criteria for the applicant’s eligibility requirements, repayment terms and methods, fees and other additional factors to determine loan approval.

  • Marcus by Goldman Sachs: Best lender for debt consolidation with no loan fees.
  • LightStream: Best lender for debt consolidation with a co-signer option.
  • Prosper: Best lender for debt consolidation with a low minimum loan amount.
  • Upstart: Best lender for debt consolidation with fair credit.
  • Discover: Best lender for debt consolidation with a long loan term.

It is a known fact that every consumer has different needs, and lenders understand the need to provide specialized designs to meet those needs. The above listed companies stood out among others based on their eligibility, competitive interest rates and other features offered to consumers. You may use this as a guide to find the best company that would match your credit standing and your financial needs.

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The Pros and Cons of a Debt Consolidation Loan

The Pros

As discussed, Debt consolidation loans can be an option idea for many consumers to save money on interest and monthly payments, plus providing a chance to improve your credit score.

  • Interest savings: Multiple sources of debt with different interest rates can be difficult to manage, especially if these have high annual percentage rates. To set an example, if you have two credit cards with an APRs of 16% and 24%, you will benefit from a debt consolidation loan with an APR of 15%. This will save you a lot of money on interest, plus of course, you get fixed amortization rates for the duration of the debt consolidation loan term. “Rates can be considerably lower than credit card interest rates, so you’ll save money in interest fees,” says credit expert John Ulzheimer, formerly of Equifax and Experian. “Second, loans have a finite amortization period, generally not longer than a few years. You can’t say the same about credit cards.”
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