Debt consolidation is one of the best debt-reduction strategies. Individuals combine their multiple debts into one large debt through these methods, which also streamlines the interest rate, terms of payment, and deadline.
Keep reading this blog post to further explore your options in debt consolidation plans. Of the four options of debt consolidation discussed below, not every option will fit you. Numerous deciding factors may tweak your preference and the option’s suitability. Here are the four main options:
Home Equity Loans
You can acquire these loans against your home’s equity. Hence, you can’t opt for this plan if you don’t have a home. With this option, you borrow a loan against your home and pay off all the other debts.
Home equity loans have significantly lower interest rates than regular credit cards. However, the biggest drawback of this method, i.e., losing your home if unable to pay the loan on time, is what makes the method slightly risky.
This method is widely popular among individuals when they can’t choose the first option. This strategy allows you to transfer all your credit card debts to a single card. However, there are a few things you must ensure before choosing a credit card company for this purpose:
Credit cards offer lower interest rates to afford the monthly payments.
The credit card has a lower transfer fee, allowing you to transfer all the other credits onto a single card. 2%-4% is ideal.
Some companies offer lower interest rates only for the introductory period, which lasts for 18 months or less. Hence, if you have a smaller credit, you can easily opt for this method. You must also ensure not to carry out new purchases from this newly acquired credit card as that will be marked on the regular interest rate.
If you have a retirement account or an insurance policy, you can borrow money from that account. However, the biggest drawback is that your beneficiaries won’t receive anything if you don’t repay the loan and a life-threatening incident occurs. You can either extract money from your retirement account or borrow from your insurance policy’s total sum.
Loans for Debt Consolidation
A bank or a debt consolidation firm can offer you a loan for this purpose. You can also look for a personal loan if you have a great credit history and score.
Your debt consolidation strategy depends on your financial reality. You can opt for any option if you can pay high monthly fees. However, the first two options are relatively safer and popular amongst people.