Discover These Five Strategies You Can Use Today to Consolidate Your Debt and Become More Financially Secure
As many Americans struggle to make ends meet, they consistently turn to credit cards and other types of loans to stay afloat. Unfortunately, when not managed correctly, debt can start piling up. If you are like the thousands of people swimming in a sea of late bills and negative balances, you may not think there is a way out.
Fortunately, you are not alone. There have been millions of people in your shoes, and they have found ways to build themselves back up by using smart financial strategies and beneficial loan programs. Understanding your debt and your options can put you on the path to financial security and save you money.
Here are five options you can tap into to start getting a hold of your debt today.
- Understanding Your Debt and Your Financial Habits
None of us ever plan to get into debt. It is never something that we desire or want and, for most of us, the stress of mounting payments can have a negative effect on our everyday lives.
Let’s face it; financial literacy is not a subject found in most school curriculums. For most of us, our understanding of debt and how it affects our lives usually happens when we are already buried in it.
To build a better financial foundation, it’s best to understand what types of debt you can have:
Most likely, you will see these types of debt:
- Credit Cards
- Student Loans
- Medical Debt
- Personal Loans
- Car Loans
- Business Debt
Most of these types of debt fall into one of two categories:
- Secured Debt – This type of debt is secured with a physical asset. A car loan, for example, is secured by the car itself. If you fail to pay a car loan your vehicle, the asset securing the loan, is repossessed.
- Unsecured Debt – This is the opposite of secured debt and has no asset to back it up. A credit card is a type of unsecured debt. Although there are no assets to seize when you don’t pay, this certainly doesn’t mean you are off scot-free if you don’t make your monthly payments.
The first step in getting a handle on your debt is understanding where it is all coming from. Consider developing a budget and keep track of all of your spending. Building good financial habits will not only help you get out of debt but, if kept up, can significantly reduce the risk of getting back into it.
Here are just a few things you should focus on:
- Knowing how much you owe and who you owe it to.
- Setting up a schedule to pay bills on time.
- Pay down at least the minimum payment each month.
- Prioritize which debts to pay off first.
- Building an emergency fund
These are just a handful of helpful tips to help get you started now.
- Consolidating Your Debt Through a Credit Card Loan
A credit card consolidation loan can be an excellent strategy to tackle debt. These loans can bundle up all of your debt and make it easier to chip away at.
Here are some of the advantages of a credit card consolidation loan:
- They can carry a lower APR if you have good credit.
- Most loans will come with a steady interest rate and monthly payments, making your debt more manageable.
- Some companies offer convenient features like direct payments to creditors.
There are three main ways to get a loan like this: you either go through a local credit union, bank or explore different online programs.
Credit unions can offer members flexible loan terms and excellent rates. These non-profit lenders are better suited for people with good credit (FICO over 689). Most will need you to become a member to be able to access these types of loans.
Another great option is to find an online loan provider. Online lenders can offer you rates and payment examples before you apply with the option to pre-qualify, something a credit union or bank usually won’t offer. This is great because it does not come in as a hard inquiry on your credit report. Some will even offer services like direct payments to creditors, which can be incredibly convenient.
Another thing that is great about online loan servicers is that they can offer you a no-risk consultation to give you an idea of what your debt strategy will look like.
One thing to note about online loan lenders is that you might encounter an origination fee of anywhere from 1-8% of your loan amount.
Your third option for a loan of this type is to go to your bank directly. This usually is only for those with better than average credit. Visit your local branch to find out your options.
- Taking Out a Loan Against Your 401k
Some people argue that this option should be your last resort. While it is usually not advisable to take a loan out against your 401k, sometimes you haven’t got many other choices.
If you have exhausted options, like a credit card consolidation loan, then you might want to consider going through with a loan of this type.
Here are some quick pros and cons of using your 401k to take out a loan.
- It can carry lower interest rates than unsecured loans like a consolidation loan.
- Usually has no impact on your credit score.
- If you can’t repay, you could face some severe fines.
- You are taking away from your future retirement.
Also, if you happen to lose your job, you will have to pay back the loan in record time, usually around 60 days. Even if you keep your job, 401k loans usually need to be repaid within five years.
- Refinance Your Credit Card
Refinancing your credit card, also known as a balance transfer, can be an excellent way to not only lower your APR but also save money when paying off your debt. Most credit cards can offer an introductory APR that is either 0% or very low. This period can last anywhere from 12-18 months.
One thing to note is that there is usually a fee when transferring a balance to a new card. This can be as high as 5%, so keep that in mind if this is an option you would like to pursue. Credit card transfers usually require a decent credit score to go through. If your score falls anywhere below 690, you might not qualify.
As with any option listed here, credit card transfers do come with some downsides.
Not only do these offers require a good credit score, but they also:
- Carry a balance transfer fee, and sometimes an annual fee.
- Jump up in APR after the introductory period.
Credit card transfers can be a great tool in your arsenal to tackle debt. Before jumping on an offer, always explore your options and see what your best strategy is.
- Finding a Debt Management Plan
This is an excellent option if you have multiple sources of debt that you need to consolidate and don’t know the best way to approach it. Debt management plans allow you to make a steady monthly payment towards multiple loans.
Debt management plans are great if you are having trouble qualifying for other types of debt relief and can offer you extra features like consultation and a customized debt relief plan.
These programs can not only give you a steady monthly payment, but they can also cut your interest rate. This will save you money in the long run and can be a great option if you can pay off your debt in a five-year timeframe.
This is also a more accessible option for those with less than perfect credit.
Debt can seem like it’s swallowing you whole. With all the piled-up bills and late payments, it can feel as if it’s never-ending. Exploring your options can be the first step in developing a plan that will not only get you out of debt but also save you money. There is no better time than now to get started on building your new life free of debt and financial stress.