Although debt management is not something that is currently taught in school, it definitely should be. A lot of Americans find themselves overrun with debt, and they have no idea how to correctly handle it. If you ever face too large debt, counseling is one of the first things you should do – after this, you can clearly see all your options and weigh them accordingly.
Contrary to popular belief, bankruptcy is not the unanimous solution if you find yourself under too much debt. More often than not, there are a lot of different ways to deal with your debt before filing for bankruptcy – the most common of which is a debt consolidation plan.
This is basically finding (alone or with the help of an agency – more on that later) a low-interest repayment plan that turns your numerous monthly obligations into one clear, clean and singular one. Here are the different ways you can try to consolidate your debt:
1. Personal loan
This is easy – take out a personal loan with the lowest interest rate possible and an affordable monthly payment, and pay off all other outstanding debt. You have basically swapped your high-interest obligations with one low-interest one.
Before going on and applying for a loan, be careful to check your credit score. Chances are, if you are already in debt, you might not qualify for an adequate personal loan.
The equity in your home can be used to consolidate debt into one, low repayment plan:
- View: uses of your home equity
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2. Credit card
This option works very similarly to the personal loan option. If you have a low-interest credit card, you can use it to pay off high-interest credit cards fairly easy.
Be very wary of the commissions these transactions usually imply. Banks can charge between 2% and 4% of the amount transferred. This option can be a good bet if you have a low-interest credit card with little or no balance on it, and the amount you need to consolidate is not very high.
3. Credit counseling
While this is technically not a debt consolidation plan, such organizations have a very good track record of reducing the interest rates of their clients. If you don’t have the best credit score, contacting such an agency can be a great idea. They are known to reduce the interest rate of certain clients by up to 20%, which can do wonders to your repayment plan.
4. Loans from friends and family
This is really self-explanatory. If you have a family member or friend who is both willing and able, getting a low-interest (or no interest) loan without involving bank can be great. We do advise to also write it down – it saves future hassles.
5. Retirement account loan
Assuming you have some savings in your retirement account, this is your last line of defense if everything else fails. We strongly advise against ever withdrawing money from your retirement savings, because this usually carries lots of penalties. In spite of this, if you have no other option, try to first borrow money against the one you already have saved up – only then actually withdraw money to pay debt.
We hope that these ideas will help you with your debt consolidation issues, or at least get you thinking about your best options. As always when talking debt, make sure it is your #1 priority, and you can get rid of it sooner than you think.
Share this article on social media in order to raise awareness on debt consolidation, and also maybe get a couple of other ideas. More minds always come up with better solutions!