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?
- 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.
- 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.
- 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.
- 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.