Personal Loan
A personal loan is a type of loan you can use for various purposes, including debt consolidation. This is one of the best options if you can obtain a low annual percentage rate (APR) compared to the overall rate on your current debts. You typically don’t have to secure any collateral; in most cases, only your income and credit history are used to qualify.
Debt Consolidation Loan
A debt consolidation loan is an unsecured loan used solely to combine multiple debts into one balance. These loans may be offered by major banks, credit unions, and online lending companies. Many debt consolidation loans are provided in the form of personal loans.
Credit Card Balance Transfer
A credit card balance transfer can be a good option when you have high balances on multiple credit cards from different issuers. The application process is simple, you do not risk any collateral, and you usually receive a decision within seconds.
Mortgage Loan or Cash-Out Refinance
Once you’ve paid down enough of your mortgage loan for your home’s estimated value to exceed the amount owed on the loan, you have the right to home equity financing. You can borrow against your home equity through a mortgage loan or cash-out refinance. These loans often have low interest rates and high borrowing limits because the loan is secured by your home. Lenders consider your credit history and financial history when determining if you qualify and what your rate will be.
Borrowing from Your Life Insurance Policy
If you have a whole life insurance policy with cash value, you may be able to use it to reduce your debts. There are various ways to access the cash value in your insurance policy. Primarily, you can take a loan against the cash value of your policy. The interest rate is typically low, and you are not required to make regular monthly payments. Any outstanding debt will be deducted from the death benefit upon your passing. Alternatively, you can withdraw a portion of the amount directly, without needing to repay it. In either case, you do not need to qualify or undergo a credit check, aside from ensuring that the cash value is sufficient to cover the loan or withdrawal, plus any ongoing policy fees.
Cash-Out Auto Refinance
Cash-out auto refinancing replaces your existing car loan with a larger loan based on the equity you have in your vehicle. After applying with a bank, credit union, or online lender, you will receive a new loan and a substantial amount of cash that you can use to consolidate your debts.
Borrowing from Your Retirement Savings Account (401K)
The IRS allows you to borrow up to 50% of the available funds in your retirement savings account (401K) or $50,000, whichever is less.
You have five years to repay a 401K loan, plus interest, when using the loan for debt consolidation. Otherwise, any amount not repaid previously is considered an early withdrawal and will be subject to penalties and income tax. If you leave your job, you may have to repay the loan by the next tax return due date or face early withdrawal penalties. You can avoid penalties by rolling over all or part of the remaining loan balance into a qualifying retirement plan or a retirement savings account by the tax return filing deadline.
If You Need Help, Where to Go for Assistance
You may need help from a specialized agency if you do not qualify for traditional options due to poor credit or limited assets. Consulting a non-profit credit counseling agency may help you review your options and determine the best solutions for your future.
While
Although specialized debt settlement companies may advertise themselves as a solution for debt, working with these companies is not a desirable option as they often charge fees and use methods that negatively impact your credit rating. You can negotiate a settlement on your own with the credit card company without paying fees to a third-party company.
Conclusion
Each option involves protections and features. The best option for debt consolidation depends on your specific situation. Once you identify your options and begin repayment, you will likely feel relief as you take valuable steps toward financial freedom.
Source: https://www.thebalancemoney.com/five-ways-to-consolidate-debt-on-your-own-960613
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