Debt consolidation is perceived by many as a dangerous financial solution because you get to repay less of your debt monthly. Why is this bad? Well, it makes you feel like you have less financial problems to deal with as yet and you will find yourself in worse financial situations if you do not resolve your financial crisis.
A suitable personal finance management strategy is the total money makeover that will involve overhauling your lifestyle and spending habits. However, there are unavoidable cases that call for consolidation. The main types of loans that allow for consolidation include:
1. Credit card loans
This strategy involves transferring all your credit card balances onto one credit card that charges zero interest. This card is also known as the 0% balance transfer credit card. The zero interest charge runs for a promotional period of up to 18 months depending on your banker.
There will be a small fee charged for the balance to be transferred. This works best if you plan on and are capable of repaying all your loans within the 0% promotional period. You can find out more details with the #1 debt consolidation company to determine if this plan suits you. You may also consider the fact that you will need a good credit score to qualify.
2. Personal loans
A friend or a relative can loan you some money which you can use to repay your loans. This will be charged at a reasonable interest rate. Caution should be taken and strict guidelines given to ensure repayments.
3. Home equity
This is commonly referred to as the home equity line of credit which you can take up to pay off your outstanding debts. By taking up such a loan, you will have lower interest rates even if they are variable. It is an interest-only payment which may take longer to repay and you may end up paying more later on. As a secured loan, your home may be at risk.
4. 401(K) Loans
It isn’t a good idea to take up a loan from your employer-sponsored retirement account if you wish to retire with some good money set aside. However, when you need to pay up multiple accumulated debts and you know that you can repay the 401(K) loan, then you may take up this loan. The upside to 401(K) loans is the credit bureaus don’t bother with them as you are borrowing against yourself. You should however avoid the temptation because of hefty penalties imposed on 401(K) pension accounts.
Talk to your financial consultant; one that is from the best company with top debt consolidation reviews, to know if this plan is suitable or not.
5. Student loans
Repaying education loans is expensive and if you are not carefully handled, this may go far into your old age. There are specific lenders with consolidation plans for private student loans simplifying repayments.
6. Life Insurance loans
Just like your 401(K) loan, you aren’t advised to borrow from your life insurance policy to pay off your accumulated debts. Fortunately, it gets rid of the outstanding debts in your different accounts and there are no repayment deadlines. But you will have a few penalties or tax bills on your loan balance.
In conclusion, you may consolidate your debts in different ways and with different lenders, but you should consider the risk involved in any strategy you choose. You should also consider asking your lender politely to lower your monthly repayment amounts first before taking the high road of multiple debt consolidation.
Whether the loan is secured or not, calculate and evaluate the risks involved.
These are clear explanation of different ways to consolidate one’s loans. It is always important to know the risks involved.