If you are facing a mountain of debt, your best option may be to seek debt consolidation tips that can help you rescue your finances. Debt consolidation is the process of rolling many smaller debts with high interest rates into a single large debt with a lower interest rate.
Debt consolidation tips can be beneficial because they allow you to pay off your debt faster without damaging your credit in the process. Here are some tips that can help you get the most out of the debt consolidation process.
Determining When Debt Consolidation Is Necessary
One of the most difficult parts of the debt consolidation process is determining when debt consolidation is needed. There are some indicators that signal that debt consolidation may be an option you need to consider. Here are some of the signs:
- You are using your credit card to pay for groceries and everyday expenses because you have no other funds available.
- You are taking out high interest cash advances to handle minor emergencies.
- You have no idea how much you owe your creditors.
- You have been denied credit or a credit line increase.
Use A 0% Introductory Offer
If your credit rating remains good and you have not defaulted on any of your debts, you may be able to open up a credit card with a 0% introductory interest rate for balances that are rolled over onto the credit card. This allows you to pay off your high interest debt while paying no interest to the credit card company. Using this method, you must pay off the debt balance by the end of the introductory period or face paying interest on the entire accumulated amount since the opening of the credit card. This is one of the riskier debt consolidation tips as it can put you deeper into debt than when you first started.
Apply For A Personal Loan
It has become increasingly difficult to find a lender that is offering unsecured personal loans, but these loans are still out there. A personal loan allows you to obtain a large chunk of money at a low interest rate that can be used for whatever purpose you wish. The loan can be obtained for terms at short as a few months or as long as 5 years. If the personal loan has a fixed rate, the payments for the loan will remain the same for the life of the loan, helping you budget your finances effectively.
Consider A Title Loan
In some cases, a title loan may be the best option for you to get the funding that you need to pay off expensive debt. A title loan is obtained against the title of a car, boat, motorcycle, or other property that you currently own free and clear.
The property is used as collateral against the loan and may be seized if the loan is not repaid according to the agreed upon terms. Like all other methods offered as debt consolidation tips, you should review the terms and the payment schedule before obtaining this type of loan so that you understand what is required and can reduce your risk of losing your property.
Tap Your Home Equity
Tapping into the equity available in your home is other option for obtaining additional money that can be used for debt repayment. If you have a significant amount of equity in your home, you can tap into this equity with a home equity loan or a home equity line of credit from your bank.
The interest rate for a line of credit is typically variable but the interest rate for a loan is generally fixed, allowing you to pay the same amount each month to repay the money obtained. Many people choose these debt consolidation tips because the interest that is paid towards a home equity loan is deductible at tax time and you can obtain a larger amount than what is usually possible with a personal loan.
Borrow Against Your Life Insurance Policy
One of the debt consolidation tips that few people know is that if you have a life insurance policy at your disposal, you may be able to borrow money against your policy to pay your other debts. Borrowing against your insurance policy is not like taking out other types of loans. The amount borrowed does not have to be repaid back, but if not, the money taken is deducted from the money your beneficiaries would have received upon your death. Depending on the amount available for your insurance policy, paying back the money may be a strategic move that you will want to consider carefully.
Borrow Against Your Employer Sponsored Retirement Account
If you contribute to a 401(k) or some other type of employer sponsored retirement account, there is a good chance that you will be able to borrow from the account at a low interest rate. The money obtained can be used to pay down or pay off your other debts that have a higher interest rate attached to them. This money must be repaid back under the terms of the agreement or it may be viewed as a disbursement from the account, subject to penalties and taxes. This is another one of the debt consolidation tips that is rarely explored thoroughly.
Be Careful If You Borrow From Friends Or Family Members
One of the quickest ways to destroy a relationship is to get finances involved. Although it may seem like a good, cost effective idea to borrow money from your friends or family members to pay down expensive debt, you also must consider the consequences if you are unable to pay back the money that you borrowed. An unpaid debt in these situations can result in hurt feelings, unwarranted expectations, and the possibility of legal action against you in the future.
Choose A Debt Consolidation Company Carefully
One of the most important debt consolidation tips to follow is to choose the debt consolidation company that you would work with to help you reduce your debts carefully. Make sure that the company is a reputable one with a good reputation and a record of success. Avoid services that charge you high fees or recommend that you stop paying your debts altogether. These are warning signs that you may be working with a company that does not have your best interests in mind.
Facing a difficult financial situation can be scary and depressing, but it is important that you do not give up. Any financial situation can be remedied with time and dedication, regardless of the amount of money you make. The trick is to live within your means and avoid accumulating additional high interest debt in the future. Following these debt consolidation tips can help you get your finances back on track in no time.