Getting out of debt is one of the hardest things to do. On the other hand, it is one of the best things you can do for your finances. A great approach for reducing or paying back all your debt is debt consolidation. Debt consolidation means reorganizing your debt, so you only have a single debt payment per month. Some debt consolidation plans may leave you in even worse financial straits than before.
The following are smart debt consolidation options to consider.
Balance Transfer Card
A balance transfer card, or credit card refinancing is a fantastic debt consolidation plan. It involves transferring credit card debt to a balance transfer credit card that has a 0% introductory APR period. The credit charges no interest for a proportional period, which typically lasts between twelve and twenty-one months.
You must have a credit score of 690 and above to get a balance transfer card. Most card issues will charge a three to five percent fee for the amount you are transferring to the card. Therefore, when choosing a card, calculate the transfer fee and determine whether it is more than your current interest payments.
Because the card charges no interest, you get at least a year to pay off your credit card debt for free. Taking advantage of the 0% APR can save you plenty in credit card interest.
Home Equity Loan
If you own a home, you can use your home equity for debt consolidation. You can get a line of credit against your home equity, which you can use to pay off your credit card debt and other loans.
The best home equity loan will have a low-interest rate, making it a smart debt consolidation plan to pay other debts. You get a low interest rate because of the long repayment periods. Another factor is that the loans are secured by your home, which results in lower interest rates than a personal loan.
A home equity loan is a one-time loan with a fixed interest rate. You may qualify for one even with poor credit. A HELOC (home equity line of credit) may only require interest payments for the first ten years with principal payments to be made later. However, HELOCs have variable rates which can rise drastically.
Debt Consolidation Loan
A debt consolidation loan is a debt consolidation option that involves getting a loan and then rolling multiple debts into a single monthly payment. It is the best option for those with a low credit score and, who cannot qualify for other types of loans. You use the loan to pay off other debts you do not want to consolidate.
Debt consolidation loans are unsecured, so your interest rate and loan limit will primarily depend on your credit score. On the other hand, they can give you more comfortable repayment terms than your other debts.
The loans can get expensive because there may be startup or origination and monthly management fees. Scams are also common in the debt consolidation marketplace, so be wary.
Peer-to-peer lending platforms are services that pair borrowers with investors. They involve receiving loans of between $25,000 and $50,000 from peers on the platform. Just like personal loans, they are unsecured loans. Therefore, your credit score will determine the terms of the loan including the limit and interest rate.
If you have poor credit, the interest rate can be very high. Peer-to-peer loans have short repayment terms, which means higher monthly payments. However, you benefit from lax requirements meaning you can get the loan even with bad credit.
Debt Consolidation To Reduce Debts
If you want to reduce your debts, consider a debt consolidation plan. The above are smart debt consolidation options for you to evaluate. They may help you reduce your debts quicker and improve your financial status.