The quickest way to get out of debt is to never get into debt in the first place. The next quickest way to get out of debt is to throw as much money as possible at your loans until they are gone. Unfortunately, that may not be quick enough. If you have high interest loans and can only just cover the principal and maybe a little extra, then it may take you years to pay off your debt.
As crazy as it sounds, borrowing more money can actually help you get out of debt more quickly. But there is one big caveat – if you borrow more money it should be as a last resort and you need to do it with a plan and under controlled circumstances. That means you need to make the commitment to get out of debt, borrow money only if you can get it at a lower interest rate or more favorable terms than your current debt, and only borrow enough money to consolidate your loans to make it easier and less expensive to repay your debt.
When to Consider Debt Consolidation
If you find yourself struggling to make your payments, the first step you should take is to contact your creditors and ask for more favorable terms such as a lower interest rate or more time to make a payment. Sometimes the lenders will work with you and the crisis is averted. Other times you may need to get more creative. That is when a debt consolidation loan can come in handy. Again, this should only be used with the commitment to get out of debt as soon as you are able, and not as an excuse to increase spending and rack up more debt.
Do it Yourself Debt Consolidation Options
If you can commit to a repayment schedule and stop using credit cards, then a debt consolidation loan may be a good option to help you get back on pace with your loan payments. A debt consolidation loan only makes sense if you will be saving money, will be able to pay your debt more quickly, or if you have other more favorable terms. The best part is, you can create your own debt consolidation loan.
Why not get a debt consolidation loan from a debt consolidation company? Because many (not all) debt consolidation companies offer expensive services that you can do yourself. The key is knowing where to look and what to do. The following tips give some options that may be less expensive than many traditional debt consolidation loans, and they are available to almost anyone with good credit.
1. Transfer your credit card debt to a 0% credit card
If you currently have a lot of high interest credit card debt, you may be able to transfer some or all of it to a 0% balance transfer credit card, which will significantly reduce the amount of interest you are paying and make it faster and easier to repay your debt. Keep in mind that most balance transfer cards charge a fee to transfer the balance to the card. Even so, a 3-5% fee is substantially lower than the interest rates on many credit cards, which often exceed 20%.
2. Debt Consolidation with a Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is a flexible line of against the value of your home – you use your home’s equity as collateral. HELOCs should be used with caution because you are using your home as collateral. But you can save a lot of money on interest when you use a HELOC as a tool to consolidate debt and not enable spending. The interest rate you can get on a HELOC depends on many factors including current interest rates, your credit history and score, and other factors. With a strong credit score you can currently find HELOCs in the low 5% range, and they go up from there.
3. Lending Club and other peer to peer lending companies
Lending Club is currently the leader in the peer to peer lending company, which allows regular folks such as you and I to request a loan which is funded by other regular folks. Lending Club just acts as the middle man and facilitates the loans. P2P loans are a good way to obtain a personal loan for whatever you need it for, including bill consolidation loans, home improvements, major purchases, etc. Lending Club also offers people a way to do online investing in a secure manner.
Other debt consolidation options
There are other debt consolidation options, but the three options listed above are the best for many people. Other options include refinancing your home and withdrawing equity, making a withdrawal from your 401k or other retirement account, or getting a home equity loan (similar to a HELOC, but it is a one time loan and is not as flexible). These options present more drawbacks than the options listed above and can prove to be more expensive than they are worth.
Debt consolidation is a chance to start over – don’t blow it
Debt is expensive, and if you are considering a debt consolidation loan, you recognize that you need to eliminate your debt once and for all. If you are able to secure a debt consolidation loan at a lower interest rate, then take advantage of it. Stop borrowing new money, cut up your credit cards, and repay your debt as quickly as possible.