Debt Consolidation: Ways to Consolidate It

Debt consolidation can cut down your debts drastically. A number of methods are available to consolidate higher-rate credit cards and personal loans into a single loan. They include switching to lower interest credit cards, home equity loan, personal loan, retirement plan loan, and debt counseling service or professional debt negotiation.

Whether a debt consolidation loan is better than a debt management plan depends on your current debt situation and preferences.

Various Ways to Consolidate Debt

Too much worry about debt means it´s time for solutions. Pay down, consolidate or transfer or negotiate interest and due date.

Negotiate with creditors. Talk to your creditors about lowering monthly payments. It gets you the temporary breathing respite to overcome a short-term credit crunch.

Transfer balances to lower interest credit card. Rate surf only if you can pay off the outstanding debt within the specified period of the low introductory rate. In the time it takes to do all the transfers, the period may be over. Read carefully as a change of one or two words can change the direction of the entire promotion.

Go for a home equity loan. Owning your own home and some equity built up over the years makes you eligible for a home equity loan line of credit. Inexpensive and quite easy to get, they could even offer a tax deduction for the interest portion of the loan. The drawback is the collateral for the loan being your home. A home equity loan if used right can be very handy but first understand the implications.

One cautionary part is another trap that many fall into. After paying off the existing debt, they ring up charges on the credit cards all over again. This makes the home equity loan an additional one to pay off apart from the credit cards. It´s twice the trouble then. To reduce debt seriously, stop spending and pay back the home equity loan as soon as possible.

Borrow from retirement funds. Loans from 401 (k) or other retirement plans, is usually allowed by employers but keep it as a last option. Typically loans are limited to 50% of the assets in your plan for a maximum of $50,000. These loans usually offer attractive interest rates. But among the drawbacks, is the interest being almost never tax-deductible.

Borrow against life insurance. With life insurance, you can borrow on its value. The interest rate is significantly lower than commercial and you can take all the time in repayment, as there´s no time limit. Not paying back however can lead to a huge burden for your beneficiaries.

Borrow from credit union. Credit unions usually offer lower interest and fees on loans. If you don´t have one, ask your employer, family members or organizations to find out which one you can join.

A non-profit consumer credit counseling agency. Morris recommends this as your first stop. Experts in consumer debt constantly negotiate with the creditors to get the late fees waived and interest rates reduced. It´s a helpful discipline since it enforces a change in spending habits. A person serious about getting out of debt will find it a good solution.

Negotiate with primary lender. Morris maintains, ¨A mortgage lender would rather re-negotiate than repossess your home. They can say no, but you can go to them and say, 'I know I´m behind. Can we stretch out the payments? It´s an upfront relationship. They do lose money if you default. Most lenders will re-negotiate"

Finally?

There?s always family and friends as your last option. If you can borrow from relatives, there´s nothing like it. Friends and family if at all charge minimal interest rate or none, saving you a lot. But it also means you´re taking the risk of ruining a relationship. If you value the relationship, better to play it safe with some kind of written agreement, even if it´s a personal note.