Money can be a tricky thing to navigate, especially when it comes to debt. If you’re in the red, repaying the money you owe as quickly as possible can save you big. The longer you carry a balance on credit cards and loans, the more interest you’ll rack up on your debt – and the more you’ll have to fork over when all is said and done.
So if you want to tackle those mounting debts head-on and start saving money in the long run, here are five ways to consolidate your debt and give yourself a financial boost:
Execute a Balance Transfer
If you’re carrying debt on a credit card with a high interest rate, you can save big by transferring the balance onto a new card with a lower rate. Some cards offer promotional interest fees as low as 0%, which can be monumental in helping you conquer your debt faster. But it’s essential to have good credit in order to qualify for a card with a low interest rate.
There’s typically a fee in the range of 3% of your debt that you’ll pay upon shifting your balance onto the new card. And be mindful that that introductory 0% interest rate won’t last forever. Most of these offers expire in 15 months or less, so use that time wisely to pay down your debt quickly.
(See our favorite credit cards for 0% balance transfers)
Take Out a Peer-to-Peer Loan
In peer-to-peer lending (P2P), borrowers obtain a loan from individual lenders without going through a traditional financial institution. This can be an excellent way to save money on interest rates, as the loans are usually unsecured and based on your credit score or reputation rather than collateral.
A P2P loan is also a popular choice among individuals who have been turned down for more traditional bank loans due to bad credit or lack of financial history. Many people who take out P2P loans find success in consolidating their debt, as the average interest rate for these loans is between 5-36%.
(Discover the best peer-to-peer lending platforms)
Tap Into Your Home Equity
Tapping into your home equity is a last resort means of debt consolidation, but if you’re in dire straits, you might want to investigate borrowing against your home at a low interest rate. This method allows homeowners to use the built-up value of their property as a resource to pay off other debts, such as credit cards and personal loans.
There are two ways to do this: with a Home Equity Line of Credit (HELOC) or a cash-out refinance. In a HELOC, you’re given a line of credit up to a specific amount and have the option to draw out that equity over time. This is similar to a credit card in that interest is only charged on the amount withdrawn.
In contrast, with a cash-out refinance, the entire value of your home is used as collateral for a new mortgage loan, allowing you to take the difference between the old and new loan amounts (minus closing costs) in cash. This money can then be used to pay off other debts.
(Learn how to choose the best home equity loan option)
Borrow From Your Retirement
Borrowing from your retirement may seem like a risky move, but it can also be an effective last-ditch option if you’re in need of saving money on interest rates. You can take out a loan against your 401(k), 401(b), or pension plan at a low interest rate. The benefit of borrowing from your retirement is that it enables you to pay back your plan (generally under more favorable terms), rather than having to pay back a lender.
The drawback, of course, is that you could be jeopardizing your retirement savings. It’s essential to weigh the long-term consequences and ensure you replace the funds as soon as possible.
(Learn more about borrowing from your 401k)
Borrow From Your Life Insurance Policy
As a final resort, you can borrow against your life insurance. You can take out a loan against it (typically up to the value of the policy), and with the proceeds, consolidate your debt. Your insurance company usually won’t require you to make payments, but it’s a good idea to do so anyway.
Failure to repay a life insurance policy loan means your family may be entitled to nothing when you die. So while borrowing from your life insurance can help in the short term, it must be handled with extreme care and caution for the long haul.
How have you considered consolidating your debt? These are great options . . . if you’re really serious about paying down debt.
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