Consolidating Debt - Considering All of Your Options
When most people think about debt consolidation loans, they immediately think new credit card with a low introductory variable interest rate.
While this may have been one of the most popular and easy methods of obtaining a debt consolidation loan, it certainly wasn't the smartest way to go in may cases.
Why? That low, low introductory interest rate wasn't so low several months after getting the card.
That variable interest rate would normally skyrocket into the stratosphere after the introductory period - or even sooner if you were late with a payment.
Fortunately, there are other ways to consolidate your debt.
1.
Transfer high interest credit card or other consumer debt to a credit card with a lower fixed interest rate.
Fixed is the key word here.
It can make a lot of sense to transfer balances over to a lower fixed interest rate card.
Just don't be late with your payments or you may be faced with an automatic interest rate increase.
2.
Obtain a bank loan If you've got strong enough credit to do it, going with a fixed rate bank loan may be your answer.
Again, don't sign on the dotted line if the bank wants you to sign a variable rate interest deal.
3.
Borrow against your life insurance policy This can be a very scary proposition - especially if you find you can't repay the loan as you could lose your life insurance.
But it does have benefits.
You won't need to fill out an application and there is no credit check.
And, there is no set schedule for paying the loan back.
In fact, you don't have to repay it at all, but you'd then be without insurance, or at least have reduced insurance in the amount of the loan.
4.
Borrow against your retirement account You'll have to be sure that you repay every penny within 5 years, or you'll be faced with a 10% penalty on the unpaid balance.
You'll also run into issues with the IRS as well.
To be sure, the decision to consolidate your debt is an important decision and is one that shouldn't be entered into lightly.
If you find that you need help in making the decision, consult your CPA or financial advisor.
Alternatively, you can contact a reputable credit counselling agency.
The larger your debt load, the more important it is to get professional advice so that you don't end up in a worse position that you find yourself in now.
While this may have been one of the most popular and easy methods of obtaining a debt consolidation loan, it certainly wasn't the smartest way to go in may cases.
Why? That low, low introductory interest rate wasn't so low several months after getting the card.
That variable interest rate would normally skyrocket into the stratosphere after the introductory period - or even sooner if you were late with a payment.
Fortunately, there are other ways to consolidate your debt.
1.
Transfer high interest credit card or other consumer debt to a credit card with a lower fixed interest rate.
Fixed is the key word here.
It can make a lot of sense to transfer balances over to a lower fixed interest rate card.
Just don't be late with your payments or you may be faced with an automatic interest rate increase.
2.
Obtain a bank loan If you've got strong enough credit to do it, going with a fixed rate bank loan may be your answer.
Again, don't sign on the dotted line if the bank wants you to sign a variable rate interest deal.
3.
Borrow against your life insurance policy This can be a very scary proposition - especially if you find you can't repay the loan as you could lose your life insurance.
But it does have benefits.
You won't need to fill out an application and there is no credit check.
And, there is no set schedule for paying the loan back.
In fact, you don't have to repay it at all, but you'd then be without insurance, or at least have reduced insurance in the amount of the loan.
4.
Borrow against your retirement account You'll have to be sure that you repay every penny within 5 years, or you'll be faced with a 10% penalty on the unpaid balance.
You'll also run into issues with the IRS as well.
To be sure, the decision to consolidate your debt is an important decision and is one that shouldn't be entered into lightly.
If you find that you need help in making the decision, consult your CPA or financial advisor.
Alternatively, you can contact a reputable credit counselling agency.
The larger your debt load, the more important it is to get professional advice so that you don't end up in a worse position that you find yourself in now.
