4 Debt Consolidation Methods That Actually Work

New York, USA, July 15, 2024 – Dealing with debt can feel like climbing a never-ending mountain, but there’s good news: you don’t have to face it alone or keep paying the smallest amount possible every month. This article talks about four smart ways to tackle your debt faster and more effectively, no matter what kind of debt you have. Keep reading to learn more about these strategies and how they could help you say goodbye to debt.

1. Personal loan for debt consolidation

One of the most common debt consolidation loans is a personal installment loan. It’s called an installment loan because the borrower agrees to pay off the loan balance in fixed monthly installment payments. Interest rates on personal loans are typically fixed also.

Personal loans can be obtained from various lenders, both online and brick-and-mortar, but it’s best to compare their rates to see which lenders have offers that fit best with your lifestyle. Some lenders offer low-interest rates and favorable terms, while others specialize in providing loans to borrowers with lower credit scores.

2. Balance transfer credit card

Another option for debt consolidation is transferring outstanding credit card balances to another credit card with a lower interest rate. Start the search for this by reaching out to the credit card companies you’re already doing business with.

If you can’t find a balance transfer card from your internal network, search for a credit card company you’re not currently doing business with. Some credit card servicers have low interest rates and even 0% interest balance transfer options. Since balance transfer offers are typically introductory or promotional, they will expire. When the rate expires, any balance remaining unpaid becomes subject to the standard APR, which is generally variable and high. In addition, a balance transfer typically comes with a transaction fee which is either a percentage or a flat fee.

3. Home equity loan or HELOC

Unlocking the equity in your home through a home equity loan can be another avenue for debt consolidation. This method allows you to tap into the value you built in your property by having made consistent mortgage payments over time. Think of this kind of loan as being a second mortgage on your home, and possibly with a key advantage: the interest rates on these loans are generally lower than those associated with credit cards.

Alternatively, a Home Equity Line of Credit (HELOC) provides a flexible solution that empowers homeowners who have more control over their borrowing. Unlike a home equity loan, a HELOC approves for the borrower for a maximum amount without the necessity to withdraw it all at once. This means you borrow as much of the line of credit as you need, when you need it. Both the home equity loan and the HELOC give you a way to use your home’s equity to streamline your financial obligations, but it’s important to proceed with caution. These methods use your home as collateral, meaning if you fail to keep up with the payments, you risk losing your home. Before deciding on these options, thoroughly evaluate your financial situation and consider seeking advice from a financial advisor to make an informed decision.

4. Peer-to-peer loan

Peer-to-peer loans (P2P) are unsecured like personal loans, and they don’t come from a traditional financial institution. Peer networks are groups of companies or individuals that provide a “pool” of lending funds that borrowers can tap into.

Approval for a P2P loan is based on credit score and credit history. Interest rates and terms vary from lender to lender. It is possible to qualify with a lower credit score, but the interest rate may be higher, and the repayment term could be shorter. Shop around before accepting a P2P loan.

The Bottom Line

Debt consolidation works if you do it right. Proven methods are a personal loan, a balance transfer credit card, a home equity loan, HELOC, or a peer-to-peer loan. Approval for one of these options can help get you out of debt, but it’s just the first step.

The best way to benefit from debt consolidation is to pay off your credit cards and not use them again until you finish paying off the debt consolidation loan. Failure to do that could result in increasing, not decreasing your debt. Be prepared to make that commitment.

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