Check This Out: The Different Ways to Consolidate High-Interest Debts

 

Having debt is indeed a serious matter that many people face today. But, imagine if you have multiple debts with high-interest rates. For sure, that’s a huge burden that can affect not only your finances but also your life in general. If you’re in this difficult situation, it’s time to consolidate your debts. 

Debt consolidation is the best option you can take to pay off high-interest debts at a reduced rate and monthly payment. This strategy gives you a chance to eliminate your debt problem and start living a debt-free life. 

Take some time to read this article if you want to know how debt consolidation works and the different methods to consolidate debts. 

What is Debt Consolidation?

It’s pretty straightforward how debt consolidation works. This method involves merging multiple debts into a single debt, typically at a more affordable interest rate and lower monthly payment. Unsecured debts like credit cards and payday loans can be consolidated for an easier and more affordable payment. 

Remember that debt consolidation is not a silver bullet solution to your debt problem. You still have to make payments every month until you entirely get rid of your debt. 

You can find different ways to consolidate debts, but when choosing a debt consolidation strategy, you should ensure it’s advantageous on your part and suits well your financial situation. 

Personal Loans

Personal loans are the go-to option for borrowers who want to consolidate their credit card balances and unpaid loans. Typically, the interest rates for personal loans are fixed, and they are less costly than credit cards and other loan types. 

You have more chances of getting approved for a personal loan if your credit score is good to exceptional. Having a well-established credit can also make you a stronger candidate for advantageous annual percentage rates. You can avail of debt consolidation loans with Match Financial if you need to pay off high-interest debts. 

Home Equity Lines of Credit and Loans

It’s possible to use the equity of your house as security to obtain a loan for consolidating your debts. The good thing about this method is that you can avail of a more favorable APR because you put a valuable asset as collateral for your loan. 

The only catch with using home equity for getting a low-interest rate loan is that you may lose your property if you can’t pay back what you owe. That’s why it’s a must to be responsible when paying the loan to avoid getting your home seized by your lender. 

Retirement Plans

Another option you can take to pay off credit card debts and unsecured loans is to borrow funds from your 401(k) retirement plan. However, not all employers allow their employers to take out money from their pension accounts for debt repayment. So, you should ask your employer about it or read the terms and conditions of your retirement plan. 

In most cases, you can use half of your 401(k) retirement account funds. Depending on the agreement between you and your employer or account manager, you can repay what you owe for approximately 5 to 7 years. 

Besides your 401(k) retirement plan, you can also take out funds from your individual retirement account (IRA) or Roth IRA to pay off your debt obligations. However, you can be charged with penalties if you withdraw money from such retirement accounts while you’re still under the age of 60. 

Credit Card Balance Transfers

If you’re struggling to pay several credit card debts, you can opt to transfer them into a new credit card for more manageable repayment. Credit card balance transfers can also increase your chances of getting an affordable rate of interest. 

It’s less hassle to apply for a new credit card to consolidate credit card debts if you have a business. There’s also zero percent interest for the first year or two years of using your new credit card. 

However, you have to make sure that you repay the amount you take from your credit card before the end of the zero percent introductory period. This is to avoid paying a costly interest. For your advantage, you should work with a credit card issuer that provides a longer introductory period and affordable transfer fees. 

Debt Management Plans

You can go to a credit counseling agency if you need some help on how to manage and pay off your debts. A credit counselor can assess your financial situation and give you advice regarding that matter. 

In most cases, a credit counselor will go into a negotiation with your creditors for you to merge your multiple debts into one and pay it at an interest rate that’s more affordable. If your creditors agree to the terms offered by your counselor, you’ll start making payments to your creditors through the counseling agency. 

Takeaway

Consolidate your debts if you’re struggling to pay them. You can use different methods for debt consolidation to make it easier for you to pay off what you owe at a lower interest rate. Take note of the debt consolidation methods on this list for that purpose. 

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