Debt can easily hang over a family like a black cloud, never disappearing until it manages to ruin lives and promote dissention. The only way to avoid this inevitable collapse is to proactively deal with your debt, starting with consolidation. When you consolidate debt, you put all of your eggs in one basket, so to speak, and hopefully with a low interest rate. This makes working out a budget much easier so that you and your family can be comfortable again.
Following are the eight most popular ways to consolidate debt. Although they are all effective methods, you will find that some will not work for you. Examine your financial situation carefully to determine which will work the best in your circumstances.
Credit card debt is a major source of anxiety for many Americans, and quite often is spread out over several different cards. Rather than adding up the balances on your Discover, Visa, MasterCard, American Express and other cards, try negotiating a balance transfer to the card with the lowest interest rate.
The only pitfall here is that it can take a while to complete balance transfers and you might run into trouble with introductory APRs. If your low rate on balance transfers expires before you can pay any of it down, you might as well not have done it in the first place. Talk to your creditors to determine the best solution for you.
Home Equity Loans
A home equity loans means borrowing money against the equity you’ve built in your house, which has benefits and drawbacks. When you take out a home equity loan, your house becomes collateral against the balance, which means that if you don’t pay it back on time, you could lose your home.
If you’re going to take out a home equity loan to consolidate debt, make sure that the terms are favorable. Pay off your debts, then pay off the loan as quickly as possible to avoid accumulation of interest. You should also know that interest is often tax-deductible up to $100,000 of principle, so consult your CPA about your options.
If your employer allows withdrawals from your retirement plan, this might be a good way to consolidate debt. The interest is paid toward your retirement account, which means that you really don’t lose the money, and you generally have five years to pay it back before the IRS imposes any penalties. The only risk here is that, if you quit or lose your job, you’ll owe the full balance immediately, so make sure you have job security before taking this route.
Life Insurance Policies
The great thing about life insurance policies is that you can borrow from whatever you’ve already paid without any penalties. If you don’t pay it back before you pass on, the amount paid out to your beneficiaries is reduced, but they don’t incur any further penalties, either. Just remember that you want to take care of your family, so try to pay it back as quickly as possible.
Relatives & Friends
While most financial experts advise against putting money between yourself and your relatives and friends, you might not have any other choice. If one of the people closest to you is well-off, you could ask for a loan to consolidate your debt, then work out a repayment system you can meet. Just make sure that you develop a contract or promissory note to protect yourself and your relative or friend.
Many people use personal loans to consolidate debt, which is usually less expensive when done through a credit union. The interest rates are lower and the penalty fees aren’t nearly as steep, so see about joining a credit union near you. It might be a requirement to open a savings account, but it’s worth it if it allows you to consolidate your debt.
In many cases, credit counseling centers are the best way to rid yourself of debt. They not only help you pay back your creditors, but they also instruct you in healthy spending habits. Just make sure that you go with a non-profit agency with excellent references, as there are a few unscrupulous businesses that will take your money and fail to help with your debt at all.
Some times, rather than trying to consolidate your bills or loans, it’s easier to go directly to the horse’s mouth. If you’re behind in payments because of job loss or emergency circumstances, most lenders will work with you to bring you back up to speed. When they have to repossess your car or foreclose on your home, they lose money on the deal, so try appealing to their sense of business. Explain the situation and ask if there’s anything you can do.