Debt consolidation is one of the best ways to deal with mounting debt and increasing debt payments. By consolidating all of your debts into one, you may enjoy both lower interest rates and a lower total monthly payment. Most importantly, debt consolidation can help prevent missed payments or debt default, sparing your credit report from negative entries.
Family and Friends
While the danger of threatening good relationships exists whenever we borrow from friends or family, a personal loan from our social circle can be an ideal way to consolidate your debts. Personal loans are generally more informal than traditional loans and often come with low or no interest fees.
Home Equity Loans
Home equity loans are an inexpensive way to consolidate all types of debts. Frequently, the interest rate on your home equity loan will be lower than it is on your other debts, saving you money down the road. Generally, a home equity loan also lowers your total monthly payment.
Retirement Savings Accounts
If you have ample savings in a 401k or other retirement plan, you can borrow from your retirement savings to consolidate (or eliminate) your debts. The danger however, is that you may fail to pay back your retirement account, which not only drains your retirement but may also incur penalties.
Credit Card Transfers
Transferring several credit card balances to a single credit card instantly consolidates those debts into one, lowering your minimum payments. Unfortunately, you may not have a credit card with a large enough balance to hold all of your debt, and not all debts can be consolidated in this way. However, transferring higher-interest balances to a lower-interest card is always a good idea.
Whole Life Insurance
Whole life insurance policies grow in value over time, and these can be another source of funds for consolidating your debts. There's no interest charged on what you borrow from your policy's value, and you can pay back what you borrow at any time, or not all.
A Nonprofit Consumer Credit Counseling Agency
Working with a nonprofit credit counseling agency provides professional help in managing your debts. Credit counseling agencies can often negotiate lower or suspended interest rates and manage the fixed payment you make to them, distributing it to your creditors. Be aware, however, that your credit score may be negatively impacted.
Your Bank
Bank loans are available for consolidating personal debt, but you should be aware that it may take a month or more before a loan application is approved. Also, you'll pay prevailing market rates in interest on a bank or credit union loan, and the repayment terms will be rigid.
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