Debt Consolidation Tips

Guide and Tips on Debt Consolidation Programs

Top 10 Debt Consolidation Tips That Help You Save Money

The following ten possibilities may help you get control of your debt without filing bankruptcy.

10. If you have a 401(k) or other employer-sponsored retirement account, borrow part of the money to pay down your debt. This should be done with caution, however. While you can often borrow from your retirement account at a low interest rate, if you fail to pay the money back as you agree to or if you lose your job and can't pay the loan back at that time in its entirety, your loan will be viewed as a disbursement. You will be assessed the taxes and penalties associated with the early withdrawal of the funds.

9. If you have life insurance, borrow money against your policy. Strictly speaking, you do not neet to repay the amount borrowed if you can't or don't want to, but it will be deducted from the amount paid to your beneficiaries. For this reason, planning to pay the money back is advisable.

8. Borrow the money from family or friends. It probably will save you interest, but the list of associated problems can include the potential for damaged personal relationships, the expectation of a return of the favor years down the road even after what you borrowed has been repaid, and the possibility of legal action against you by someone who was previously a good friend or close family member.

7. Consult a debt consolidation service. Make sure you are working with a service that does not charge you high fees. Check with your local Better Business Bureau or other consumer protection agency. You will likely sacrifice two things to work with a debt consolidation service your freedom to open and use additional credit lines and, in many cases, your credit rating. The service will usually ask you to make one monthly payment to them. In credit counseling program’s debt management plan, your payment is used to pay your creditors.

In debt settlement program, you have to choose to stop paying your creditors. Instead, you send money to a bank account that is in your control, where funds are saved up to pay reduced dollar settlements that are negotiated by the settlement firm with your creditors. Debt settlement hurts your credit score, because no monthly payment is being made to your creditors, but will lower your monthly payments, save you the most money, and get you out of debt faster than any way without filing bankruptcy. Credit counseling lowers your interest rates and your monthly payments, but your monthly payment in a credit counseling program will be larger than your payment in a debt settlement program.

6. Re-negotiate with your creditors. Your creditors may require that you incur no additional debt while working to pay off what you have already accrued. And they are under no obligation to agree to re-negotiate; however, it is often to their advantage as well. If they offer you some flexibility, it can increase their chances of eventually collecting on the debt. Many creditors have temporary hardship programs that can lower your interest rate or reduce the size of your required monthly payment, if you are suffering from a financial hardship.

5. Sick of getting those introductory 0% interest credit card offers in the mail? Before you throw the next one away, consider how much interest you could save by consolidating all your debt onto a new card. Be very careful, though. Follow a plan to pay off the debt you transfer during the low interest teaser period. Never miss a payment or your interest rate will skyrocket. If you continually open new cards and close older ones, you are not helping your credit rating. If you would like to consolidate all your debt onto a single card, consider keeping at least one of your older cards open with a small balance as well.

4. Do you own a car, boat, motorcycle, etc. with a free and clear title? If so, a title loan may be a solution. Make sure you are getting the rate you want. Also, be certain you understand the terms (will you get to keep your car, boat, or other collateral, or will you have to turn it over to the lender for the term of the loan?). Get a clear idea of the payment schedule, as failure to meet any of the terms will likely leave you without ownership of your property.

3. Take out a personal or signature loan. Since the credit crunch, this option has become very limited. Most lenders who offered unsecured, signature consolidation loans no longer do so. If you do find this type of debt consolidation loan, make sure that you are not taking on a high interest loan, even if you are lowering your monthly payment by extending the term of your loan.

2.  Refinance your home and take cash out at closing. This will help you pay down your high-interest debt without too much difficulty, and can be tax deductible. It saves you money and gets you a lower monthly payment. Just make sure that there is no possibility of missing a payment, because you don’t want to face a foreclosure because you transferred too much unsecured debt to secured debt.

1. If you own your home and have enough equity in it, take out a home equity loan or line of credit. Not only can you use the money for anything you would like, including debt consolidation, but the interest you pay on the loan will be tax-deductible so you will save in more ways than one.

Although some of these options may be more desirable than others, and most come with their own set of complications and consequences, keep in mind that they are likely preferable to continuing to struggle with unmanageable debt.

VIDEO:What is Debt Consolidation?