For a growing number of Americans, debt is a serious problem, and one that can “sneak up” on you. The first step toward controlling your debt is being aware of it. Once you’ve established that you need to consolidate and pay down your debt, the following ten possibilities may be useful to you.
10. If you have a 401-K or other employer-sponsored retirement account, borrow part of the money to pay down your debt. This should be used as a last resort, however. If you cannot pay the money back within five years, you will be assessed the taxes and penalties associated with the early withdrawal of the funds.
9. If you have life insurance, borrow money against your policy. Strictly speaking, you don’t ever have to pay the amount back if you can’t or don’t want to, but it will be deducted from the amount paid to your beneficiaries. For this reason, planning to pay the money back is advisable.
8. Borrow the money from family or friends. It probably will save you interest, but the list of associated problems can include the potential for damaged personal relationships, the expectation of a return of the favor years down the road even after what you borrowed has been repaid, and the possibility of legal action against you by someone who was previously a good friend or close family member.
7. Consult a debt consolidation service. Make sure you’re working with a service that does not charge you high fees. Check with your local Better Business Bureau or other consumer protection agency. You’ll likely sacrifice two things to work with a debt consolidation service: your freedom to open and use additional credit lines and, in many cases, your credit rating. The service will usually ask you to make one monthly payment that it will then use to pay your creditors. There are two main types, debt settlement and credit counseling. Debt settlement can hurt your credit score, but will lower your monthly payments and save you the most money without filing bankruptcy. Credit counseling lowers your interest rates and your monthly payments by less.
6. Renegotiate with your creditors. Your creditors may require that you incur no additional debt while working to pay off what you’ve already accrued. And they are under no obligation to agree to renegotiation; however, it is often to their advantage as well, since it means they will eventually collect.
5. Sick of getting those introductory 0% interest credit card offers in the mail? Before you throw the next one away, consider how much interest you could save by consolidating all your debt onto a new card. Be very careful, though. If you continually open new cards and close older ones, you’re not helping your credit rating. If you would like to consolidate all your debt onto a single card, consider keeping at least one of your older cards open with a small balance as well.
4. Do you own a car, boat, motorcycle, etc. with a free and clear title? If so, take out a title loan. Make sure you’re getting the rate you want. Also, be certain you understand the terms (will you get to keep your car, boat, or other collateral, or will you have to turn it over to the lender for the term of the loan?). Get a clear idea of the payment schedule, as failure to meet any of the terms may leave you without ownership of your property.
3. Take out a personal or signature loan. Weigh this option carefully, as the interest rate on this type of loan may not be significantly lower than what you’re already paying.
2. Refinance your home and take cash out at closing. This will help you pay down your high-interest debt without too much difficulty, and can be tax deductible. It saves you money and gets you a lower monthly payment. Just make sure that there is no possibility of missing a payment, because you don’t want to face a foreclosure because you transferred too much unsecured debt to secured debt.
1. If you own your home and have enough equity in it, take out a home equity loan or line of credit. Not only can you use the money for anything you would like, including debt consolidation, but the interest you pay on the loan will be tax-deductible so you will save in more than one way.
While some of these options may be more desirable than others, and most come with their own set of complications and consequences, keep in mind that they are likely preferable to continuing to struggle with unmanageable debt.
