Perhaps the sheer number of bills you have to pay overwhelms you, and you’re falling deeper and deeper into debt. But what if you only had one payment to make? We have outlined four proven strategies to consolidate debt and take back control of your finances.
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1. Consolidate Your Credit Cards
If you have decent credit, you can secure a credit card with a low interest rate and transfer higher-interest rate balances onto that card. This can help you save on finance charges while you pay off your debt.
Another great alternative? Those in need of extra support can contact a credit counseling agency and enroll in a Debt Management Plan (DMP). You will pay the counseling agency each month, and the agency will serve as a middleman and pay your participating creditors. You do not need good credit to enroll in a DMP.
Your interest rates may go down as a result of credit counseling, and your monthly payments will likely be lower as well. Check monthly payments and interest rates to get pre-approved today:
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2. Take Out a Personal Installment Loan
Consider taking out an installment loan — a loan with a set number of payments over time — featuring a low interest rate and affordable monthly payments. This, if done correctly, can help you pay off high-rate debts without too much risk.
Although it can be difficult to secure a personal installment loan if you don’t have good credit, if you do manage to get a loan with a fixed repayment period, you will know exactly how much you need to pay until you are debt free. Your credit score may also improve by carrying a balance on an installment loan rather than a credit card with a high balance.
3. Borrow from Friends & Family
Do you have a relative or close friend who can help pay off your debts? If so, consider borrowing money from them. You should not resort to this option, of course, unless you are confident that you can pay them back. It should be a last resort. In addition, you must acknowledge that extenuating circumstances could damage your relationship with this person.
That said, your loved ones may be willing to lend a hand at a low interest rate, and be a bit more flexible with the terms of the loan. There is also no credit check, which means you can ultimately improve your credit score by paying off high-balance credit cards and consolidating debt in this way.
4. Borrow from Your Retirement Account
Most retirement plans let you borrow against them, although there are certainly drawbacks to consolidating debt with your pension plan or 401(k). While you can typically borrow against your retirement funds at a low interest rate, and pay the interest back into your own account, you risk facing taxes and penalties if you cannot pay back the loan.
This consolidation strategy does not require a credit check, which makes it ideal for those who do not qualify for other low-rate loans. To avoid harming your long-term finances, however, pay careful attention not to jeopardize your retirement savings. Furthermore, make sure you do not use your retirement funds to consolidate debt, only to end up bankrupt anyway. Discuss your financial situation with a credit counselor or bankruptcy attorney if you are unsure of how to best proceed.
Remember that when you consolidate debt, you are not necessarily paying it off. In most cases, you are simply moving it around so that it’s easier to pay.