Best Ways to Consolidate Debt

If you spend freely with credit cards and find it hard to keep up with the payments every month, you would definitely feel financially fatigued. Debt consolidation presents a good opportunity to turn things around.

Here are some of the best ways to consolidate debt.

  • Debt Management Program

Debt management programs help reduce the rate of interest on credit card debt and create an affordable monthly payment that clears the debt in about three to five years. Non-profit credit counseling agencies offer debt management programs. The agencies have certified counselors who analyze your financial situation to find your best option depending on your financial situation. They do this for free.

Advantages of Debt Management Programs

  • They reduce your interest rate, lower the amount you pay per month and help you pay your debt faster.
  • You can choose to withdraw from the program any time since it is not a loan.
  • They can get collection agencies off your back.
  • You credit counselor can help you avoid falling into debt again.

Disadvantages of Debt Management Programs

  • To manage your plan you are charged a monthly fee.
  • You might be required to close all of your credit accounts in the program
  • Lenders may cancel interest rates concessions if you miss a payment
  • There will be a drop in your credit score during the first six months of the plan. However, the score will rise as you consistently pay on time.
  • Personal Loans

Taking a personal loan you’re liable for one payment a month instead of many credit card payments every month. However, this only works if you have a strong credit score. This will get you a lower interest rate on your loan than the one on your credit accounts, which will save you money and help you pay them off faster.

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  • Credit Card Balance Transfers

You can get a new card with a lower interest rate and transfer your higher interest balances to the new card. It is just using one card to pay off another. However, this strategy only works if it can help you save money in the long run. It involves thorough research on aspects such as the balance transfer fee, interest rates on transferred balances, the length of promotional period and annual fees. You’ll find more on this subject at the Bills.com website, https://www.bills.com.

  • Home Equity Loans

When you use a home equity loan to consolidate credit card debt, you can significantly lower the interest you pay per month. This strategy is a bit risky though. This is because home loans consider your house as a collateral. This can cost you your home if you are not able to repay the loan.

  • Retirement Account Loans

You can alternatively use your retirement funds to pay off your debts. The interest on your loan is paid to you if you use retirement funds. This means that you will not lose your money, as it will revert to your account. Furthermore, you do not pay fees on loan origination because you are literally borrowing your own money.

  • Cash Out Auto Refinance

Use the equity in your vehicle to get money to pay off your debts or other expenses. However, this strategy is similar to home equity loans because if you miss a payment you can lose your vehicle. This is an option but you should not consider it as your first choice to consolidate debts.

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These are some of the best ways to consolidate debt. As you can see, each solution has its pros and cons. This is why it’s important to take your time, sort through your options and decide which method will work best for you.

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About the Author: Cory Weinberg

Cory Weinberg covers the intersection of tech and cities. That means digging into how startups and big tech companies are trying to reshape real estate, transportation, urban planning, and travel. Previously, he reported on Bay Area housing and commercial real estate for the San Francisco Business Times. He received a "best young journalist" award from the National Association of Real Estate Editors.

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