Are you finding it a challenge to stay current with your debt load? Is it spread around, thus making it even more difficult to manage? Are you beginning to have concerns about the impact on your finances?
While you can continue down the same path, hoping that you eventually dig out of debt, you’re not likely to make progress in an efficient manner. Furthermore, there’s a chance that your debt could continue to spiral out of control, thus leading to issues such as foreclosure, eviction, and red marks on your credit report.
Debt consolidation is exactly what it sounds like. This occurs when you move several debts under the same “roof.” If that doesn’t make sense to you, these examples of how to consolidate debt should clear the air.
1. Balance Transfer Credit Card
Do you have more than one credit card balance? If so, you can use a balance transfer credit card to consolidate it. This leaves you with one balance on one credit card, thus making it easier to manage.
Furthermore, even if you only have one credit card, you can still use a balance transfer to your advantage. This is often the best way to secure a lower interest rate.
2. Personal Loan
The nice thing about a personal loan is that you don’t have to put up collateral to receive the funds. This allows you to proceed with a clear mind.
Also, you can consolidate any type of debt you please, with the end result being one lump sum balance.
Maybe you have $10k in credit card debt, a $10k home equity loan, and a $5k loan from a family member. With a personal loan, you can quickly consolidate all of this, leaving you with one balance, one payment, and one interest charge each month.
3. Home Equity Loan
As the name suggests, a home equity loan allows you to tap into the equity in your home to use as you wish. For many, this means consolidating debt.
A home equity loan works in the same way as a personal loan, but there are two things you need to know:
- You use your home as collateral, so if you default on your loan you’re at risk of repossession
- The interest rate is typically lower than a personal loan, since it’s secured by your home
4. Retirement Accounts
Generally, this is a last resort. If you borrow from a retirement account and neglect to pay it back, it could harm your ability to retire at your target age.
However, if you’re comfortable with the idea of borrowing from a retirement account and paying the money back as promised, it’s an idea to consider. That’s especially true if this is the only way to consolidate debt.
If you’re lucky, you’ll never have to consider debt consolidation. However, this is something that many people take advantage of every year.
Rather than continually deal with separate debts, consider if there’s any way to consolidate them as a means of saving money and reducing stress.