Choose one of the below to find the best strategy towards paying off your debt – customized to your particular situation.
Consolidate Your Debt with a Home Loan
If you’re a homeowner in debt, your best strategy is likely going to be to consolidate your debt into a home equity loan. Home prices have spiked in most parts of the country, opening up value that most folks haven’t tapped yet.
Pros: Ultra-cheap interest rates (often as low as 3.5%) plus the possibility to repay over a longer time period = very low monthly payments. Most people will also be able to deduct the interest paid on a home equity line for tax purposes, saving even more money.
Cons: Only available to homeowners. Generally, only worth it for those who have large amounts of debt to repay.
Example: If you have $10,000 in debt at 18%, your monthly interest bill would be $150. Consolidating that into a home equity line would lower that to about $30/month, with possible tax deductions dropping it even further.
Conclusion: If you have sizable debt and are a home owner, consolidating to a home equity loan is definitely something we recommend learning more about.
Consolidate Your Debt with a Personal Loan
If you have more than $5,000 in debt, we recommend you look into consolidating your debt to a personal loan.
Pros: This takes all your debt and converts it to a single monthly payment (usually at a significantly lower interest rate). It also sets a date at which you will be free of the debt – normally 3 or 5 years (depending on your selection). Doing this normally boosts your credit score – reducing your “revolving credit utilization rate” (try saying that three times!) while also creating repayment history on the new loan as you make your payments.
Cons: If you have good credit, your interest rate can be as low as 5.99%, but if you have poor credit, or are seriously behind on your card payments, the rates you’ll see may be higher than the rates on your existing debt. Some folks don’t mind paying the same rate in order to get the benefits listed above. (credit boost, debt-free date and consolidation into one payment)
Example: If you have three debt balances of $4,000 each, at 18%, you’d be paying $180 a month in interest, while making no headway toward getting out of debt. Consolidating to a 5 year personal loan at 5.99% would mean you had a monthly payment of $232, (interest and principal) and be completely paid off in 5 years.
Conclusion: If you have average and above credit, consolidating larger debt balances to a personal loan can be a very smart financial move, and provide the peace of mind of having a date you can circle on your calendar when you’ll be debt free.
Consolidate Your Debt with a 0% APR Credit Card
If you have $3,000 to $8,000 of debt, we highly recommend you look into transferring those debt balances to a card offering a 0% introductory APR. This means the card offers a promotional period (as long as 21 months!) during which the card will not charge you interest on any balance you transfer to it during the transfer period (usually the first 60 days after you get the card). Link:
Pros: You can’t get any cheaper than 0% interest, so this is an option we highly recommend exploring if possible. You can use that 21 month grace period to make payments, 100% of which will go toward reducing your balances.
Cons: You’ll need to have solid credit (in the range of 650+) to get approved to make a transfer to a 0% intro APR card. Also, folks are generally approved for sums less than $8,000. Finally, these cards usually charge a 3% balance transfer fee, which is usually worth it, just make sure you read the fine print.
Example: If you have a $5,000 balance at 18%, your monthly interest charges will be $75. Moving that over to a 21 month 0% intro APR card will save the whole $75/month for 21 months – for a cool $1,575 in savings. In this example, expect to pay a $150 fee, for net savings of $1,425.
Conclusion: One strategy we recommend is to get a 0% intro APR transfer card and move whatever balance you can over to it. Then consolidate the rest onto a personal loan. This way you’ll get the benefits of both approaches.
Clear Your Debt with Debt Relief Services
If your debt is out of control and poor credit limits your options to consolidate into lower payments, Debt Relief may be the option for you.
Pros: Debt Relief services take all your debt accounts and convert them to a single monthly payment (usually at a significantly lower interest rate) by giving you a loan themselves. Doing this could boost credit score too by reducing your revolving credit utilization rate. It also sets a date at which you will be free of the debt – normally 3 or 5 years (depending on your selection).
Cons: These companies require you commit to a long-term plan to save money, that many people drop out of before they reach their goals. Also, they urge you to quit making monthly payments on your debt which can cause further damage to your credit score.
Example: You find yourself with $38,500 in student loans and $5,000 in credit card debt, using services could reduce your debt up to 50% and would combine the multiple interest payments into one simple plan.
Conclusion: If you have a credit score less than 640, struggling to make monthly debt payments, and your debt is more than 50 percent of your income, we’ve assessed the top reputable Debt Relief services for you to check out here.