Debt consolidation is a fancy name for the practice of taking out one loan to pay off numerous others, so you have only one monthly payment to worry about (instead of that big old pile of bills collecting on your front table). It’s a great way to start getting your debt under control.
While there are numerous debt consolidation services, you can also do it on your own. Here’s how:
Transfer All Your Credit Card Debt to the Card With the Lowest Rate
This way you have only one monthly payment and although most credit card companies charge you to transfer your account balances, the amount you’ll save in interest fees will likely be worth it. You can also transfer all your balances to a new card if the company offers a low introductory rate (usually for a certain amount of time), and you think you can pay off the entire debt within that introductory period.
Take Out a Home Equity Loan
Home equity loans allow you to borrow against the value of your home, and you can then use the money you borrow to pay off your debt. These types of loans are generally pretty inexpensive and fairly easy to get. The downside? You’re borrowing against your home, so if you can’t pay back your debt, the bank can take your home. Also, home equity loans tend to have a more laid-back repayment schedule, which is actually a bad thing. You want to be motivated to pay off your debt as quickly as possible, since the longer it takes you to pay off a loan, the more you’ll end up paying.
Take a Loan From Your Retirement Account
Borrowing from your 401(k) or other retirement account can help you if you’re in serious debt and don’t want to borrow from anyone else. Since you’re borrowing from yourself, you don’t have to worry about losing your car or house if you can’t pay off your loan on time. However, the IRS often charges hefty penalties for borrowing from your retirement accounts, especially if you cannot pay the money back within five years. Plus, the interest is typically not tax-deductible.
Borrow Against the Value of Your Life Insurance
If you have life insurance, you can borrow against the value of your policy and use that money to pay off your outstanding debts. This is a good option for some people, since there’s no time limit for paying off the amount you borrow. In fact, you don’t actually have to pay the money back at all, because they will just deduct the amount you borrow from your policy. The downside? If something does happen to you, your beneficiary will get less money.
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