Having trouble with multiple debts? It is ok, a lot of people do. In fact, it is safe to say that many people in the United States are experiencing similar financial problems. The reasons for that are many, but basically, it is just the world that we live in.
Reasons for going into debt
Nowadays, many hardworking people are struggling with their regular monthly bills. When it all becomes too much, taking out a loan is usually the go-to option for most of them.
- Some manage their regular monthly budget pretty well but then are faced with an unexpected emergency expense and once again, the loans start to come in into play.
- Others go into debt because of their desire to invest in themselves. In today’s economic state, if you want to have a successful career, you would normally need to graduate from college. In order to do that, you would need to have a significant amount of money, which most people simply do not have. And so their only way to get an education is to take out a student loan.
- Other people start carrying debt because they want to have their own home, and so they apply for a house loan.
Whatever your reason for carrying debt is, the important thing is to find a solution and ultimately get rid of all that debt.
How to deal with multiple debts
Once you start carrying a certain debt amount, it is easy to start adding more and more debts just to deal with the previous ones. Soon you can find yourself in an ocean of financial trouble. Dealing with multiple debts can be extremely hard, especially when you still need to take care of all your regular monthly bills. So in order to prevent losing total control of your financial future, you should look for a way to make your situation better, and getting some help is usually the only way to do that. Probably the most popular and most efficient way for dealing with multiple debts is consolidating your debt.
What is a debt consolidation?
Debt consolidation is a way for you to combine all the different loan payments that you have to make each month into a single monthly payment. Depending on the type of the debt consolidation that single monthly payment may be a new, larger loan with different loan terms.
Why is combining multiple debts into a single payment is so beneficial?
There are a number benefits that come with consolidating debt. The first and probably the most obvious one is being able to focus on a single monthly payment instead of managing multiple debt payments. That alone is going to make your life a lot easier. Having to stress over multiple debt repayments while trying to manage your regular monthly bills can be overwhelmingly exhausting. Another major benefit of debt consolidation is that you will most likely be able to lower the terms of your debts, including the interest rate. Another advantage is that consolidating your debt will give you is an overall lower monthly payment which will make your monthly budget planning a bit easier.
Different types of debt consolidation
There are three ways that debts can be consolidated:
- Debt Settlement
- Debt Consolidation loan
- Debt management plans
None of these options is a 100% method for debt relief, nor are they easy and simple fixes. However, the right debt consolidation can have a tremendous impact on your battle with debt. There are, however, some ways that you can consolidate your debt almost on your own, without having to use the services of a debt consolidation company. Now we are going to have a more in-depth look into some of these methods that you can choose for your debt consolidation.
5 ways to consolidate your debt
1. Home equity line of credit or a home equity loan
In order to pay off your multiple debts, you may be able to borrow an amount of money against the value of your home. You can also use a home equity loan to pay off your debts or use a home equity line of credit and then use the money from the loan to deal with your debts. However, when considering these options, you should keep in mind that if you fail in your payments, you will risk losing your home.
2. Credit card balance transfer
If your credit card has a limit that is large enough, you may be able to use a low rate credit card balance transfer and move all your balances onto just a single credit card. Before you choose to go with that option, make sure that by doing so you will actually be saving money and not end up paying more at the end.
3. Borrow a life insurance policy
While it may not be the most popular way of consolidating debt, borrowing money from your life insurance can still be a better option compared to bankruptcy for example. You can normally get an amount up to the value of your loan, and then use that money to consolidate your debt. You will not be required to make payments by your insurance company, that is, as long as the payments of the loan are not more than the cash value of the policy.
4. Debt Consolidation Loan
The purpose of a debt consolidation loan is to combine all your current debts into a new, single and larger loan with different loan terms. You can apply for a debt consolidation loan with your bank or you can go to a private loan lending company. In case you have a bad credit score, getting a debt consolidation loan from a traditional loan lending institution such as a bank will most likely be impossible. However, if you choose to work with a private loan lender, make sure you pay attention to the loan terms that are offered to you. Some of these companies offer really high interest rates and fees.
5. Borrow money from your retirement fund
This is, of course, much like the life insurance borrowing. This should be a last resort option for debt consolidation. Many retirement plans actually give allow you to borrow a certain amount of money against them. But you really should explore other options and review this one only if none of the other debt consolidation options are available to you.