How to consolidate your debt

It’s official now that the U.S. economy is in recession. The unemployment numbers have hit a record high, and many people are feeling the heat. A survey conducted by NextAdvisor revealed that over 50% of Americans have experienced some sort of anxiety in the past few months—and debt is the largest contributor to this.

Although debt is part of our life, it can throw you into serious problems when you lag in your payments. However, there’s one thing that you can do when you find yourself in that situation—debt consolidation. This is a good way to reduce your monthly payments or interest rate of your outstanding obligations. And, with the different debt consolidation options available, it can be a challenge for a person to choose the best option. With that, let’s look at the different methods of debt consolidation.

Acquire a 0% APR credit card

Although it’s become challenging to get one today, certain credit cards give introductory offers of 0% APR on balance transfers for a certain time period—mostly 12 – 18 months. Getting one of these cards can save you interest. However, you will need to pay off your debt during the 0% period for the card to make sense. Also, you need to take note of the balance transfer fee, as it can eat into your savings. Whenever possible, get a card with 0% APR and no balance transfer fee.

Debt consolidation loan

Applying for a loan with a credit union or bank is another debt consolidation method. Because personal loans have a fixed interest rate, they are far much better than a credit card. Your income, debt, and credit score will determine the interest rate you qualify for. Therefore, ensure that you have been saving money if you want to get a personal loan with good interest rates. Also, if you’ve ever used federated loan services, you should avoid applying for a personal loan because you might lose some securities not provided by private loans.

Credit counseling agencies

Seeking the services of the best payday loan consolidation companies is another way to get low-cost or free help assistance with your debt. One benefit of credit counselors is that they can give you valuable advice on money management or budgeting. Also, these companies can help you get a debt-management plan (DMP) to help you deal with your debt.

A DMP works the same way as debt consolidation. However, instead of applying for a loan to pay off your debts, you make a single payment to your counseling agency, which in turn pays your creditors. The plan also allows your counseling company to negotiate with your creditors for reduced fees or interest rates. However, going the DMP way comes at a cost.

Secured loans

Always take your time to think carefully when planning to consolidate your debt with secured loans. In fact, this should be your last resort. A loan secured with collateral has a low risk for the lender, and it can give you the best interest rate. However, secured loans come with a major downside in case you default. Therefore, you should opt for this route only when you are confident that your source of income is secure.

Home Equity Line of Credit (HOLEC)

The most common form of secured loans is the ones connected to a home or retirement account. Therefore, in case your home has a higher value than your debt, you can apply for a home equity loan, perform a cash-out mortgage refinance, or create a HOLEC, and convert that value to cash to help you in consolidating your debt. During periods of low mortgage rates, take that opportunity to save. However, you shouldn’t miss payments. When you default on a loan secured by your home, your lender can foreclose your property.

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