Financial problems can drain your energy, motivation, and life opportunities. According to CNBC the average American has $38,000 in personal debt, not counting mortgages.¹ That’s a heavy weight dragging down the future. Thankfully there are some effective debt consolidation strategies to help climb out of debt and wake up to a brighter financial tomorrow.
What Is Debt Consolidation?
Debt consolidation is the process of putting all your debts together to pay a smaller overall lump sum and minimize interest payments.² By consolidating—putting together your various sources of debt—you can better manage exactly what you owe and come up with options to lower the overall interest payment. Debt consolidation can also be a way to give yourself more time to earn the funds necessary to pay off your debt or a big chunk of debt. Here are some specific options.
Borrow Money From Family Or Friends
This is an old classic, but it can be lifesaver. Make a list of family and friends to contact about potentially loaning you money to help pay off your debt. If they are in a position to help it can be a lifeline to helping you avoid massive, steadily increasing interest payments.
This is especially savvy because borrowing from friends or family circumvents banks and official borrowing methods that can lower your credit score or put you in the same position of still owing money with just slightly lower interest rates eating away at you. Consider writing up any loan even from friends or family and treat it as official. Even though you have a personal relationship, money is money and you should make absolutely sure you repay the money and both agree on terms of when it is due back.
Pro Bono Credit Help
If you haven’t heard of non-profit credit counselling services it is worth looking to find some in your area. They are free and they will provide ideas and options for understanding the best ways to pay off debt and start over again. Counsellors will work with you to help you get relief from debt and establish a rock solid plan of financial recovery based around your goals and avoiding what led you into debt. These free programs have helped millions of people nationwide.³
Balance Transfer
Getting a balance transfer credit card can be another solid option. These cards are designed for people dealing with a serious debt load and often give you a larger than average amount of months to repay what is owed before interest starts accruing. Putting all your debt onto a balance transfer card can be a way to both simplify and lower the interest you are paying.⁴ Essentially you take away the debt on high interest credit cards and consolidate it on the one lower interest card. Make sure you carefully read the details of the new card before applying, however, so you don’t trap yourself again in a debt spiral.
Use Your Assets
Borrowing against your assets can be another effective way to consolidate debt. Getting a secured loan—which can sometimes necessitate having a co-signer—will hold up your possessions like vehicles, house, apartment, property and other items as a fallback which can be seized if you fail to pay.⁵ Secured loans often have lower interest rates and the interest may be tax-deductible.
Debt Consolidation 101
Pursuing a path of debt consolidation can be a great way to start paying off your debts. Putting all your debts into one consolidated loan can result in a lower interest rate and simplify your whole financial outlook.
On the other hand, collateral can sometimes be sacrificed if you consolidate, take out a loan and then don’t repay it. Consolidating debt still requires financial responsibility and in no way is it an “easy out” from your debts, but rather just a savvier way to repay them. As always it is a smart idea to do your own research online and find out the debt consolidation options that could work best for your financial situation.
[1] https://www.cnbc.com/2018/08/20/how-much-debt-americans-have-at-every-age.html
[2] https://www.nerdwallet.com/blog/finance/consolidate-debt/
[3] https://www.nfcc.org/
[4] https://www.creditcards.com/credit-card-news/help/9-things-you-should-know-about-balance-transfers-6000.php
[5] https://www.debt.org/consolidation/loans/