You are facing your debt head on and are looking into your debt consolidation options.
In this video, I break down eight common debt consolidation strategies.
See which one is right for you!
TRANSCRIPT:
If you’re in debt right now and looking to relieve the burden, I’ve got a list of 8 ways to consolidate your debt. Some of the strategies I recommend more than others, but here are the most common methods of consolidating debt.
The go-to debt consolidation strategy is a balance transfer credit card with a 0% APR introductory period. This is where you transfers balances to one credit card with a lower or a zero interest rate for a short period of time. This can work to help you pay off your debt more easily but it’s not guaranteed to be a good long term solution.
Unfortunately, a lot of people make things worse for themselves in the long term from transferring their debt onto one of these cards. You definitely want to be mindful of balance transfer fees and the duration of the promotional rate. I have a whole video on this, so please be sure to watch it if you’re thinking of going this route.
Another common debt consolidation strategy is to take out a personal loan. This involves taking out a new loan to pay off multiple existing debts. The upside is that you have a single monthly payment that’s typically at a lower interest rate than your existing debts. It simplifies your debt management. This is something that you can get on your own, you don’t need a loan officer to help you get one. You just go online and find a lender. The rate should be considerably lower than your credit card interest but won’t be as low as a home loan.
The third strategy is one that definitely needs a loan officer and that’s a Home Equity Loan or Lines of Credit If you’re a homeowner, you can use the equity in your home to secure a loan with a much lower rate than your credit cards, personal loans, car loans, etc. They have a lower interest rate because it’s secured by your home, so that means you also risk losing your home if you can’t make payments. I have two videos on this subject – one that’s about second mortgages in general and the other that compares home equity loans and home equity lines of credit. Be sure to check those out if you’re considering this and if you’re a CA homeowner, feel free to reach out because I can help you get one.
If you have a retirement account through your work, another debt consolidation option is a 401(k) Loan: Some workplace retirement plans allow participants to borrow from their 401(k) savings. This option can consolidate debt, but it’s important to understand the implications for your retirement savings.
There’s also Peer-to-Peer (P2P) Lending. Peer to Peer lending platforms connect borrowers with individual investors who provide loans. The interest rates can be high on these so make sure that the rate you get here is actually lower than the rates on the debt you have right now. You don’t just want to combine all your debt into one payment for convenience sake, you want to save money on interest too so look out for that.
Okay, let’s talk about Family Loans. Maybe you have a family member who is willing to lend you money to pay off high-interest debt. This option should be approached with caution to avoid straining personal relationships. If you caught my video on loans to friends and family you know I have strongly suggested rules around this. That video is a must see if you’re thinking of giving a loan to a friend or family member.
Number 7 on my list is Debt Settlement which normally involves a company negotiating with creditors on your behalf to reduce the amount you owe. It doesn’t work for all types of debt and it can have a pretty negative impact on your credit, not just the score but your report as well because it will indicate that debt has been settled for less than full value. I get kinda nervous about these debt settlement companies and while not all debt settlement companies are unscrupulous, some may promise to negotiate with your creditors to settle your debts for significantly less than what you owe but they often charge an arm and a leg and may not deliver on their promises.
Number 8 is a strategy I’m not too personally familiar with – Debt Management Plans (DMPs). Credit counseling agencies offer them, which allow you to consolidate unsecured debts, such as credit cards, into a single monthly payment. The agency negotiates with creditors to lower interest rates and may extend the repayment term. It sounds similar to a debt settlement but this approach is less aggressive so it’s supposed to be less harmful to your credit. One thing I like about these is that the credit counseling agencies often offer financial education and budgeting assistance to help clients improve their financial skills and avoid future debt problems. You know I love that!
Whatever way you choose to go, please have a plan AKA a budget in place, that you love and adore and want to adhere to, to prevent incurring new debt while paying off the consolidated balance.
Good luck and I’ll see you in the next video.
