If you have balances on multiple different credit cards, paying them off can be a long, challenging process. It’s hard to make progress paying off your debt when you have to split your payments between, say, seven different accounts.
Would it be easier to just pay one bill and take care of all your credit card debt?
Consolidating your debt can accomplish this and help you pay it faster. Even better, there are several different ways to consolidate debt on your own, without using a debt consolidation company.
Credit Card Balance Transfer
You can use a low rate balance transfer to move your balances to a single credit card. That’s when your credit card has a large enough credit limit.
A low credit limit doesn’t have to stop you from making a balance transfer. You can transfer just one or two of your highest interest rate credit card balances to ease some of the debt pain. Before you consolidate debt with a balance transfer, make sure that you are actually saving money with the transfer. It’s not worth it to consolidate the debt and end up paying more.
Home Equity Loan or Home Equity Line of Credit
You can borrow against the equity in your home with a home equity loan or home equity line of credit and use the loan to pay off your credit card debt. A home equity loan is a closed account that is repaid over a period of time. A home equity line of credit is an open-ended account similar to a credit card that you can borrow and repay.
Home equity loans and lines of credit often have lower interest rates and higher credit limits than other types of loans. However, there is a downside. You secure your credit card debt with the equity in your home. If you fall behind on your payments, you’ll see foreclosure that is far worse than defaulting on your credit card payments.
Debt Consolidation Loan
Debt consolidation loans are exclusively used to combine all your debts. These loans can be offered by major banks or by so-called non-profit debt consolidation companies. Be careful with using debt consolidation companies to consolidate debt. You can learn more about these from the experts at Freedom Debt Relief.
These loans often include additional fees, making the cost of the loan much higher. Avoid borrowing money from any of these companies. Instead, seek out a low interest loan from your bank or credit union for better terms and to ensure you don’t get scammed.
Borrow Against a Life Insurance Policy
It’s not the most desirable way to consolidate debt by far, but when choosing between life insurance loans or bankruptcy, borrowing from your insurance company may be best. You can usually borrow up to the cash value of your loan and use the proceeds to consolidate debt.
Your insurance company won’t require you to make payments as long as the loan is less than the cash value of the policy, but it’s a good idea to make payments anyway. If you don’t repay the loan the death benefit will be used to cover what you borrowed first and your survivors might not get anything at all.
Borrowing from Retirement
This is another of the least desirable ways to consolidate credit card debt. Most retirement plans allow you to borrow against them, but there are some downsides to consolidating with a 401k loan.
For starters, the loan must be repaid in five years or it is considered an early withdrawal and is subject to a penalty and income tax. Moreover, the loan will be due within 60 days, or you’ll face early cancellation penalties if you leave your job. Think long and hard before going this route.
Keep in mind; with all of the ways to consolidate credit debt, you’re not actually paying it off with the consolidation. Instead, you’ll just move it around so it’s easier to pay. You should also be careful to avoid taking on more debt until this loan is paid off. You could make your situation worse.