Nowadays, many people face the issue of debt. Sometimes it doesn’t matter how careful one is with their spending because unexpected expenses can occur, and if they don’t have any savings to tap into, they are in a big problem.
Yes, there are always several things you can do to consolidate debt, but first, you have to identify the best one for your current finances. In the following text, we will introduce you to several methods you have at your disposal. Before making the final decision, make sure to go over the details of each of these to understand what they include.
1. Turn to friends and family
If you believe that a small loan can solve your financial problem, you can always ask a friend or a family member for help. However, this is the last thing most people want to do. Surely, you know at least few stories about relationships that got ruined because of money. People who went through this didn’t believe it could happen to them, but still, it did.
We are not saying you should dismiss this option immediately, but instead, you should be smart about it. The best thing you can do, and the one you should do, is come in agreement with the other person regarding the repayment. Even though, in some cases, this may seem unnecessary, it can prove to be vital. Many problems can arise if all the terms aren’t crystal clear to everyone involved.
2. Take a personal loan
This is the method most people opt for. Naturally, this is only possible if you have a good credit score. Why? Well, the goal is to get a lower interest rate than the one you already have. This is the main thing you have to investigate when looking for a lender. This will depend on your current score. The better the score, the lower the interest rate you will get.
What are the benefits of a personal loan? Well, firstly, you can pay off the debt entirely in a single payment. Secondly, when it comes to repaying the loan, the monthly expenses won’t change, meaning that you will know the exact sum of money you need to put aside for this every month.
3. Tap into home equity
The main disadvantage of this option is that it is really risky, and you can lose everything in the end. It is a secured loan, meaning that if you face any difficulties with the repayments, the lender is entitled by the law to start the foreclosure process for your property. Obviously, the primary condition you have to meet is owning a property and having enough equity in it. When it comes to the interest rates, they are usually significantly lower than the credit card ones.
Yes, this may seem like the best option, but you need to have a plan before proceeding. Analyze your finances thoroughly, and make sure to have a safety net in case something unexpected occurs and affects the repayments.
4. Cash-out auto loan
As you probably know, this method is fairly similar to the previously described ones. The only difference is that you will get the loan based on the overall value of your vehicle. Basically, you use the equity of your car to get the funds. However, keep in mind that it works in a similar manner to the home equity loan. What does this mean? You need to meet all the payments regularly, and if you miss any of them, you can lose your vehicle. Due to this, it is not always recommended to go through with this, especially if you only own one car.
5. 0% APR credit card
This type of credit card can prove to be a useful tool when it comes to consolidating debt with high-interest rates. In a nutshell, you can transfer the balance to a new credit card and pay off one card with another. As you can assume, the main feature is that there is no new interest rate you have to pay. However, keep in mind that this is true only for a certain amount of time. Depending on the promo period offered, it can be anywhere between 12 and 18 months.
Nevertheless, there are several things you have to check before going through with this option. Some of them include the duration of the promo period, annual fees, as well as the cost of the balance transfer.
6. Employ professionals
If this seems too complicated for you to decide and complete on your own, you can always turn to professionals. That’s right. There are several companies that deal with the issue of debt consolidation. Their team of experts will discuss all the options available to you, analyze the details of your debt, and propose the best course of action. If this sounds like exactly what you, you should read more about the services they offer and contact them to present them with your problem.
7. Use the retirement account loan
This is probably the last thing you should do. However, sometimes, desperate times call for desperate measures. You can get a loan based on your retirement account, but keep in mind that this should be your last resort. These funds are a form of financial security for a reason. Due to this, you should not tap into this savings account unless you absolutely must. Getting this loan is fairly easy since your credit score doesn’t play an important role. Still, our advice is not to consider this option before analyzing the other ones thoroughly.
As you can see, there are numerous things you can do to consolidate high-interest debt. The most important thing is to go over all of these methods thoroughly. Even though your current financial situation may seem catastrophic and you are looking for any way to get out of it, you need to think about the future as well. Prior to making this decision, you have to learn everything there is to know about each of these options to make a well-informed decision. Finally, don’t forget that you can always turn to experts and get professional help.