Debt can become overwhelming if you don’t take the right actions. Debt consolidation is when someone puts all their credit card debt into one payment. This lowers your interest rate and is the most effective way to pay off your debt.
If you’re looking for the best ways to manage your debt, keep reading below.
Loan Consolidation
Credit unions like Chime, banks, and other online lenders are available to take out personal loans. If you have fair to poor credit, then credit unions are a good way to go because they offer more flexible terms and rates than traditional banks.
Bank loans have low annual percentage rates (APR) for people with good credit, and if you’re already a member of a bank you may be able to get higher loan amounts and discounts. It’s always beneficial to have a high credit score.
Refinance Your Credit Card
The first step is to get a balance transfer card, which moves your debt to another credit card with no interest payments for a certain amount of time. It’s typically 12 to 18 months with zero interest. Some balance transfer cards don’t charge an annual fee, however you might be asked to pay a fee of 3 to 5% of the amount you’re transferring for some banks.
Home Equity Loan
If you’re a homeowner, you may be able to get a loan or a line of credit based on your equity and pay off your debt that way. Since your house is used as collateral, you have a better chance of getting lower rates than you would for a personal loan. Just make sure you’re making the payments, you don’t want to run the risk of losing your home.
401k Loan
A 401k Loan is possible, but only consider it after you’ve tried a balance transfer card or another loan mentioned above. The biggest reason for this is that it may have a major impact on your retirement plan.
One of the best parts of a 401k loan is that it’s not on your credit report, so your score won’t be affected if things don’t go as planned. The downside to a 401k loan is that if you don’t make the payments you could face a big penalty. You’ll be stuck with additional taxes on your balance as well as penalty fees. So be careful when considering this option.
Keep It In One Place
Debt consolidation is the smartest move to make when paying off what you owe, so consider all of the options above to see what’s right for you.
