If you find yourself in deep debt, the options for getting out can seem overwhelming. It’s easy to fall prey to debt solutions that can put you in an even worse situation. Fortunately, for those with a good enough credit score, there are personal loan options that may be much better than many other alternatives.
Using a personal loan for debt consolidation could drastically reduce the amount of interest you pay. Personal loan rates are generally lower than credit card rates, so consolidating could save you hundreds or even thousands of dollars in interest payments.
Using a personal loan to reduce debt can have a few advantages. When you get a personal loan, you open a new installment line of credit, and if managed responsibly, it can help boost your credit score. A personal debt consolidation loan can help eliminate debt faster and get you back on track.
Debt consolidation with a personal loan
Why Personal Loans Are Great For Debt Consolidation.
- Fixed interest rates: Constant monthly payments thanks to fixed rates that will never increase.
- A clear objective: By opting for a loan term of 30 to 60 months, you know exactly when you will be debt free.
- Simplified debt: Combine all those credit card bills into one simple monthly payment.
Other ways to consolidate your debt
For credit card consolidation, personal loans are our first choice. However, they are not the only option when it comes to debt consolidation. If you don’t have a lot of debt, a credit card with balance transfer might be a good option.
Withdrawing funds from your retirement account may also be an option to consider. Of course, you can also lean on your friends and family if your debt is something a little more manageable. Here are some debt consolidation options to consider with the Proven Personal Loan.
Balance Transfer Credit Card
Advantages: Some credit cards with balance transfer offer more than one year of interest at 0%. In most cases, this is more than enough to get your debt under control.
The inconvenients: Some balance transfer cards may have a small transfer fee. You will want to be aware of this when shopping for a card.
It may seem strange to tackle credit card consolidation with another credit card. However, a credit card with balance transfer might be a faster and easier solution if your credit card debt is manageable.
Balance transfer credit cards work by giving you a place to transfer an unpaid balance. This is usually a bargain since many of these cards come with a 0% interest period. Suppose you pay off an outstanding balance of $ 1,000 on a card and don’t progress at the current interest rate.
You can transfer this balance to a balance transfer credit card with 12 months interest at 0%. Then you would be able to reduce that balance while still having a full year without interest.
Withdraw funds from your retirement account
Advantages: It’s your money, which means you won’t have to show proof of good credit.
The inconvenients: This could reduce your retirement savings and you could be affected by the aforementioned early withdrawal penalty. Also, you may not be able to withdraw the entire fund in one lump sum, which may not be very helpful in forgiving larger debt.
If you have a 401k or an IRA, you may be able to withdraw emergency funds if you need the money in a pinch. Unfortunately, there are possible repercussions to consider.
Tapping into your retirement funds can be a bit tricky. If you are under 60, you may be subject to an early withdrawal penalty. That alone could seriously decimate all the funds you had in your account and make it more difficult when it comes time to finally retire.
If you can avoid using your retirement funds for debt consolidation, then you should. Especially since, in most cases, the money you keep in your 401k is protected from creditors.
Borrow from friends and family
Advantages: Your best friend or family member probably won’t charge you interest, and you don’t need great credit.
The inconvenients: Proceed cautiously as this has the potential to cause a huge change in your relationship. Make sure you have clear and open communication to avoid breaking trust and hurting feelings. In short: transparency.
It can be difficult to contact your friends and family when you need financial help. In some cases, it can even be a last resort. However, it doesn’t have to be so dramatic.
After all, your loved ones are meant to be there for you in good times and bad. It’s perfectly reasonable to lean on your friends and family when you’re in a financial bind. Just make sure you approach this transaction as you would a real lender.
Make a detailed plan outlining exactly how much financial assistance you need. Include your income and give your loved ones an idea of ââhow long it will take to pay them back if they decide to help. Make sure you put everything in writing so that everyone has reasonable expectations for the future.
Debt Consolidation Tips to Keep You Calm
For some people, the only thing harder than getting out of debt is not getting into debt. There are so many potholes and pitfalls in life that it can be exceptionally easy to find yourself in the hole again. Fortunately, there are a lot of things you can do to help get rid of your debt.
Whether it’s a detailed household budget or little things to keep you focused, you can avoid going into debt. One of the cornerstones of debt consolidation is having the attitude and the stomach to make decisions that will help you change your life for the better.
Here are some tips that can help you stay free from future debt:
Build a budget
Once you have mastered credit card consolidation, the trick is to avoid any frivolous charges afterwards. Unfortunately, the sheer ease of just swiping a card makes this problem very difficult. This is where a budget can really help.
In making a budget, you are essentially taking inventory of where all your money is going. You know what to expect from your monthly utilities or how much you spend on groceries. A good budget can even tell you how much money you have left after you’ve paid all those big bills.
While budgeting can be as easy as pulling out a notepad and pen, there are plenty of budget calculators online as well. Plus, once you’ve budgeted, you can track your spending and start figuring out what purchases you can do without. This helps free up funds that can be used to prevent another slow descent into debt.
Avoid converting to secured loans
When it comes to debt consolidation, some people think that types of secured loans like home equity are a quick fix. Unfortunately, this is not always the case and these particular types of loans can come with quite severe conditions.
Because these are secured loans, they are backed by collateral. Take the type of home equity loan, for example. This loan puts your home as collateral, which means that if you can’t pay it back, the lender could repossess your home.
In situations where money is tight and you need a personal loan, you should stick with unsecured loans. Unlike secured loans, these are not secured by collateral and are more determined by your credit score. That doesn’t mean, however, that you’re off the hook when it comes to paying these. Failure to meet payments on an unsecured loan could have negative effects on your credit history.
Track daily expenses
You might think of this as an addition to the budgeting tip we covered earlier. However, it’s worth remembering how important it is to make a habit of saving money. It’s easy to think that you can risk splurging every now and then now that you’ve survived your debt. Unfortunately, this way of thinking can put you right back in the hole.
Take the time to write down on a notepad all the purchases you make during the day. By doing this, you get a clearer picture of your daily expenses. Then you can start crossing out the things you no longer need.
âRunning expensesâ are an important variable for any successful budget. Just make sure you’re honest. In fact, it might not hurt to round all these expenses to the nearest dollar. That way you give yourself some leeway.
The bottom line
When it comes to credit card consolidation, there are a lot of things you can do to get out of debt. By far our main recommendation is an unsecured loan, but it doesn’t end there. Once you’ve mastered debt consolidation, you need to be your own sponsor and stick with what you’ve learned. The only thing worse than going into debt is finding yourself in the hole a second time.