5 Best Debt Consolidation Moves

You may be considering debt consolidation if you have accumulated significant debt and cannot afford the payments. Having large amounts of credit card debt with high interest rates and multiple payments can be expensive and confusing. Consolidating them into one monthly payment can save money and create a streamlined payment process. There are several options for how to consolidate your debt, so it is important to find the one right for you.

1. HELOC

A home equity line of credit is essentially a loan for the amount of equity in your home. Your house is used as collateral for the loan, which can be risky if you don't think you can make the payments. The interest rate will be higher than if you refinance, but much lower than a typical credit card interest rate. Also, your interest and some fees associated with the HELOC will be tax deductible. A HELOC can be obtained from your local bank, credit union or a mortgage broker.

2. Refinance

Another way of using your home's equity to pay off debt is a cash out refinance. Again, the amount of cash you could withdraw depends on the amount of equity you have. With a HELOC, you are taking a loan for the amount of equity, where a refinance is an entirely new mortgage. This is a good idea if rates are much lower than your current rate. If you will be receiving a higher rate than you have, you may want to consider a HELOC. With a refinance, you also can deduct the interest on your taxes.  If you choose this route, you will provide the lender with information about your debts, and they will be at closing.

3. Car Refinance

If you have a high interest rate, you may want to consider a car refinance. A lower interest rate could save you hundreds of dollars every year. Some lenders will even refinance your loan if you are upside-down.

4. Personal Loans

A personal loan could be obtained to consolidate debt. If you don't own a home and don't have the option of a refinance or HELOC, then this may be an option for you. You will typically receive a higher rate than a mortgage related loan since a personal loan is often unsecured debt. Still, the rate will be lower than most credit cards. You can get a personal loan at your bank or credit union.

5. Negotiations

Another option to reduce credit card debt is to contact the lender and ask for a rate reduction. They will often negotiate in order to avoid a default. If they are unwilling to change terms, you can contact a credit counseling service who will negotiate on your behalf. Be wary of those who charge fees upfront or guarantee to wipe away debt, since this isn't possible.

 


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