While we all usually try to avoid debt, for most folks, it’s a fact of life.
The average American family has over $8,000 in credit card debt alone.
When you have multiple loans with different interest rates and different monthly payments, which are due on various days of the month, it can be difficult to keep up. This is why many people with debt feel like they will never get out from under it.
If this sounds like your situation, it may be time to consolidate your debt. Doing so can be a great way to make it easier to pay off your loans because you are reducing your interest rate and making one payment versus several payments throughout the month.
Let’s take a look at five tips for consolidating debt.
Borrow from a Friend or Family Member
One option for consolidating debt is to turn to a trusted friend or family member. If you know someone who has the resources to pay off your debt, see if they can and are willing to do so.
Then you can set up a payment plan with them. It is also important to have a written agreement, with both parties agreeing to the payment plan and any other key points. Thus, everyone understands their obligations under the agreement and the potential outcomes for not meeting them. The risk, however, is that you could damage your relationship with that person if you have difficulty repaying the loan.
Make a Balance Transfer
Balance transfers are a good option for borrowers who have credit card debt on multiple cards. Transferring your balance from several higher-interest credit cards to one lower interest credit card could help you save hundreds of dollars.
Many credit cards offer special 0% balance transfer promotions to attract new customers. By taking advantage of this offer, you could pay no interest for a period of six to eighteen months. This means your payments will go to paying off the debt even faster, because a larger portion of the payment will go to principal instead of interest. Keep in mind, however, that if you don’t pay off the balance in that time, you’ll need to pay off the accrued interest as well.
Take Out a Personal Loan
Another option for consolidating debt is to talk to your bank or credit union about a personal loan. With a personal loan, you can refinance all of your loans at a single, lower interest rate. Also, you’ll have just one monthly payment, instead of multiple ones.
The main drawback of a personal loan is that you typically need a strong FICO credit score to qualify for one. Check your credit score before shopping around for a loan, so that you’ll have an idea of what kind of rates you might qualify for.
Tap Into Your Home’s Equity
If you own a home, you may be able to take out a home equity debt consolidation loan. By using your home as collateral for your loan, you’ll be able to get a lower interest rate and monthly payment. Additionally, the interest you pay on your equity debt consolidation loan might be tax deductible.
401(k) Loan
If you have a 401(k) with your employer, you may be able to borrow from it to help pay off some of your debt. This should only be considered as a last resort option because you’ll be taking savings away from your nest egg. There may also be tax penalties for borrowing from your retirement fund.
Consolidate Your Debt Today
If you would like to learn more about how to consolidate your debt, contact us. Our loan consultants will work with you to find the right product for your needs.