Trying to keep up with all of your debts can be overwhelming.
One of the most common and effective ways to deal with the world of debt is to consolidate it. Debt consolidation is when you combine multiple debts into one large payment with a smaller interest rate. Theoretically, it makes it your debt easier to keep track of and thus, more manageable.
There are different ways to go about it, however, and choosing the right one could be the difference between becoming debt-free or creating a messier issue. Here, we’ll tell you a few different ways to consolidate debt so you can choose what works for you.
Take Out a Personal Loan
Personal loans are a great way to consolidate your debt into one monthly payment. All personal loans are unsecured, so you don’t have to put forth any collateral. It’s also relatively easy to get low-interest rates and good loan terms when you have good credit, so it becomes cheaper than paying off several debts simultaneously.
The only problem with personal loans is that the system is built for people with good credit.
If you have bad credit, it’s near impossible to find a loan with good enough interest rates to make consolidation worthwhile. Talk to the people at Debthunch (who is Debthunch?) to find out if a personal loan is a good move for you.
Borrow From Retirement Savings
Not all employer retirement plans allow this, but you could borrow from your 401k to pay off all of your credit card/other debts. If yours allows for it, you’ll be able to borrow up to $50,000 or half of the account balance (whichever is less) to use freely, so long as you pay it back within 5 years.
One of the major benefits of doing it this way is that you’re paying interest to yourself because it’s your own money. However, there are a lot of risks involved too. The main drawback is that if you leave your job, you could incur an “early withdrawal” penalty, which might be significant.
Transfer Everything to a Credit Card
Transferring all of your loans to one, low-interest, credit card is a common route for people that consolidate. Credit card companies are usually interested in balance transfers because it creates new business for them.
Many will even offer you a no-interest period on the transferred balances. The only problem is that this usually lasts for 12-18 months, then you’re back to paying the same old high-interest rates that credit cards usually have.
There Are Many Ways to Consolidate Debt
These are just a few of the most popular ways to consolidate debt, but there are others as well. You could use a home equity loan to borrow against your house or contact a credit counseling agency, each of which comes with its own set of pros and cons.
When you’re dealing with large sums of money, it’s important to take your time deciding which consolidation method is for you.
Did you enjoy this post? Come back and visit us again for more advice on personal finance.