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Tips about Free Debt Consolidation

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Daniel Cohen
UpdatedJun 12, 2024
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    5 min read
Key Takeaways:
  • Consider borrowing from your 401(k) account to consolidate debt.
  • Make sure you are paying down your debt in the most efficient manner.
  • Use the free Debt Coach tool to determine your most effective strategy for debt freedom.

Free Debt Consolidation- 5 Ways to Consolidate Debt for Free

Debt consolidation is a popular topic. There were over 670,000 Google searches for "debt consolidation" last month. With so many Americans struggling with debt, it is not a big surprise that many people are looking for a way to get control of their debt. If you are looking for a way out of debt, you may be drawn to first look at free debt consolidation options, ones that don't cost you any money, before you look for professional help you have to pay for.

Free Debt Consolidation Options

Before you choose the best way to handle your debt, carefully consider the different options available. Here are a few free debt consolidation options to review:

  1. Debt Coach- has introduced Debt Coach, a new, free tool that helps you find the best way to become debt free. The solution that Debt Coach recommends for you is based on your goals, priorities and your individual finances. While preserving your confidentiality and privacy, Debt Coach can execute a 'soft pull' of your Experian credit report, at no cost and without it affecting your credit score. This way, the most current and accurate snapshot of your debts is taken into account and factored into Debt Coach's recommendation.
  2. 401(k)Loan- If you have money in a 401(k) account, borrowing from your own account is an almost free debt consolidation option. You have to pay interest on the amount you borrow, but you pay the interest back into your own 401(k) account. The interest rate on 401(k) loans are usually quite reasonable. If you are carrying balances on high interest credit cards, borrowing from your account to pay off your credit card debt is something you should seriously consider. You are usually given a few years to repay the loan. Repayment terms and the rules for borrowing vary from plan to plan, so speak to your 401(k) plan administrator. The biggest risk in borrowing from your 401(k) plan is that if you don't pay back the loan as agreed, you will have to pay a 10% penalty and income taxes on the amount you borrowed. Rules are completely different for IRA retirement accounts, so check with a tax planner before borrowing from an IRA.
  3. 0% balance transfer- A few years ago, mailboxes were stuffed with offers for 0% balance transfer offers. Since the credit crunch, while these offers still exist, they are fewer and farther between. These days, a 0% balance transfer offer is only available if you have excellent credit. Like so many things in life, the people who need it can't get it and the people who can get it don't need it. Also, a 0% balance transfer is not really a free debt consolidation option, even if you pay off the entire balance before the 0% interest rate expires. The reason they are not free is that the banks charge a fee, either a flat fee or a percentage of the balance you transfer.
  4. Insurance Policy Loan- If you have a whole life insurance policy that has built up equity, consider borrowing against it or cashing in a portion of it. This method of borrowing from yourself is a free debt consolidation option.
  5. Do-it-yourself Strategies- If you use your resources more efficiently, you can speed up the time it takes you to become debt free and save yourself money. While not technically a free debt consolidation option, because your debt is not consolidated, it doesn't cost you anything to spend your money more carefully and to make a plan to pay off your debt most effectively and at the lowest cost.
    • Budgeting- Unless you are different from everyone else on the planet, there are ways you waste money each month. Look closely at your income and expenses. Trim expenses you don't need and look for ways to pay less for fixed expenses you need. Use the budget guide, a free resource, to start spending more effectively.
    • Effective Pay-down StrategiesDo you pay only the minimum required payment on your credit cards? That is a recipe for disaster. Consider the snowball or avalanche debt pay-down strategies. Snowball targets your credit card with the lowest balance and avalanche targets your card with the highest interest. The key to both approaches is to take the amount you were using to pay off one card and add that to your payment on another card, once the first card is paid off. Either strategy, if used properly, will speed up the time to debt freedom and save you money.


Free debt consolidation options exist. Start your path to debt freedom by looking at solutions that don't cost you anything, before you examine debt relief programs that have a fee. The worst thing you can do is to pay only minimum payments on your debt while continuing to add to your overall debt. Clearly, that pattern is a trap; you will never get out of debt. Take the time to make a budget. Figure out what you can trim from your expenses. Use your own resources, such as a 401(k) account or life insurance policy, if you can. Formulate a strategy to pay down your debts more efficiently.

Lastly, take a look at the Debt Coach tool. It doesn't cost anything and in less than 15 minutes it will help you find a way to become debt free that is consistent with your goals and priorities.

Dealing with debt

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in California credit card delinquency rate was 3%, and the median credit card debt was $453.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.