Juggling a bunch of debt? Here’s how to make them easier and less expensive to remove.
You might have debts hanging over your head because you lost your job for a while and couldn’t pay your bills. Or maybe you’ve racked up some medical debt and are trying to manage it on top of a few credit card balances.
Whatever the situation, a debt is delicate enough to manage on your own. But if you have multiple debts, such as multiple credit card balances or a combination of credit card debt and loans, it can be even more difficult. Here are some options to consolidate your debt and lower the interest rate so that it costs you less.
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1. A balance transfer
With a balance transfer, you transfer your existing credit card balances to a single card with a lower interest rate than you are currently paying. Some balance transfer cards, in fact, come with a 0% introductory rate – if you pay off your debt before that introductory period is over, you will no longer earn interest. To get the best balance transfer deals, you need good credit. If your credit isn’t that good, you can still do a balance transfer, but you might end up with a higher interest rate on your new card.
2. A personal loan
With a personal loan, you can borrow money for any reason. If you pay a medical bill and also have a few outstanding credit card balances, you can take out a personal loan to cover all of that debt. The great thing about personal loans is that they are repaid in equal installments, so your loan payments are pleasant and predictable. As with a balance transfer, the better your credit score, the lower the interest rate you can expect. But there are also personal loans specially designed for borrowers with lower credit scores.
3. Cash-out refinancing
With mortgage refinance with withdrawal, you are borrowing more than your current mortgage balance. You can use the excess money for any purpose. Refinancing with withdrawal is actually a good way to consolidate and pay off debt, and given the current low refinancing rates, you could save a lot of money over what a credit card or personal loan would cost you.
To qualify for a cash refinance, you need decent credit and sufficient equity in your home. Equity is the part of your home that you own in full. If you owe $ 100,000 on your mortgage and your home’s current market value is $ 150,000, that leaves you with $ 50,000 in equity. If you want to do a cash refinance of, say, $ 120,000, that wouldn’t be a problem, as long as your credit score is high enough.
Debt consolidation can make it easier to avoid scenarios like forgetting to make a payment and deteriorating your credit score. And it can save you money. It is worth exploring these consolidation options and determining which one is best for you.