When you have taken out several loans and have multiple balances on credit cards, paying them all off can be an extremely challenging process, especially if you are short on money. It would be even harder to make progress if you were having to pay your debt from multiple different accounts. Wouldn’t it be much easier if you just had one payment to make instead of lots of little ones? You can consolidate your debt by combining all of your debt payments making it much easier to pay all the money back quicker. There are many different ways in which you can consolidate your debt with one of the most popular options being using a debt consolidation loan which we will discuss during this short, but insightful article.
A Home Equity Loan
You can borrow money against the equity you have built up in your property. A home equity loan is a type of loan known as a closed-ended account that is repaid over a certain amount of time. Home equity loans typically have lower interest rates and higher borrowing limits than the other types of loans that are available on market. However, with all types of loans, there is a negative side to a home equity loan. You are securing debt with your property’s equity. If you fall behind with your loan repayments, then you risk facing foreclosure, which is a lot worse than defaulting on a credit card payment(s).
Debt Consolidation Loan
Debt consolidation loans are used to combine all of your debts into one. They are offered by most of the major banks and loan companies that specialise in lending credit to those in debt. However, taking out a debt consolidation loan does not mean that your debts will be paid off. It is simply a way to transfer multiple different debts to one lender.
A Life Insurance Policy
It might not be one of the best ways of consolidating your debt but borrowing from your life insurance policy is a lot better than facing bankruptcy. The company which you took your insurance out with will not require you to make payments as long as the amount you borrow is less than the total amount of the policy. But, it’s always a good idea to make payments anyway even if not required to do so. If you don’t repay the entire loan, the death benefit will be used to cover the total amount that you borrowed.
Transfer the Balance to a Single Credit Card
You can transfer the balance of your debt onto a single credit card if you have a big enough credit limit to do so. However, it’s not always necessary to have a large credit limit to ease the pain of the debt. You could transfer 2 or 3 of your most significant chunks of debt to make paying them back easier with one larger payment. Before you consolidate debt with a balance transfer, make sure you’ll be saving money by choosing this option. It’s not worth consolidating your debt and then end up paying more.
Borrow From Your Retirement Fund
Most people will want to use this solution are a last resort to consolidate their debt. Most retirement plans actually allow you to borrow against them, which many people might not be aware of. But, there are some drawbacks. These loans typically have to be repaid within five or will be regarded as an early withdrawal, and you will receive a fine and be subject to income tax. Not only that, if you leave your job, the retirement loan will be due within 2 months, or you will face the early withdrawal penalties. You need to think really hard before borrowing from your retirement fund and only do it when there is no other consolidation option available to you.
The Bottom Line: Make Sure You Compare Your Options
If you do decide to consolidate your debts, then it’s important to do your research and compare the different options available to you. Different banks and lenders will offer you different amounts, terms and interest rates so it’s always a good idea to shop around to ensure you get yourself the best deal.