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5 Proven Ways to Consolidate Debt

5 ways to consolidate debtDebt management is an overwhelming concept when you’re drowning in financial troubles. However, sometimes it’s just a question of knowing the right debt consolidation technique to help you out of a jam. From credit card consolidation to loans, if you’re looking for smarter debt consolidation programs, here are 5 methods that have been proven to work and how to maximize these tactics for financial freedom at last.

Debt Consolidation Option #1: Pay off smaller bills first

You might be feeling overwhelmed by the sheer number of bills you receive in the mail each month. Particularly if organization is not your strong suit, an influx of demands is enough to destroy a healthy financial plan on its own. If this sounds like your situation, ask someone close to you to help get a bit more organized. Here’s what to do:

  • Make a list of each of your debts.
  • Organize these according to debt size.
  • Pay off smaller debts quickly to get the number of requests down to a more manageable amount.
  • Once smaller debts are settled, tackle larger debts with consistent monthly payments, and watch these shrink as well. Don’t be hesitant to contact the collectors for assistance or to discuss more flexible payment plans.

This will not be a good option if you have too much debt to chip away at slowly or if you are so thrashed by the financial mess that you can’t even start to make heads or tails of it.

Debt Consolidation Option #2: Take out an unsecured loan

Taking out a personal loan to satisfy your debt can be a good credit consolidation solution, but you have to be careful. On the upside, you’ll be able to pay off all your debt at once and leave yourself with a single payment to deal with. That’s much more manageable. Assuming you have decent credit, you’ll have plenty of options to choose from with lenders competing for your business, driving down the interest you’ll have to pay.

What you need to be careful about is getting stuck with a bad loan. Carefully review the terms of a loan before you accept them, shop around to find the best rates, and opt for user-friendly lenders like SoFi that offers additional benefits like social events, job opportunities, and unemployment freezes on loans.

Unsecured loans are particularly advantageous because you don’t need to specify what you are using the money for and you don’t have to put down any collateral to be approved.

Debt Consolidation Option #3: Consolidate credit cards into one payment

Sometimes, people drown in debt because they simply can’t manage all the various payments that are being demanded of them each month from multiple credit cards. Credit card debt consolidation is an excellent solution if that’s the case. A balance transfer credit card can help you consolidate credit cards into one payment for easier debt management and more reasonable monthly payments.

The downside to this method is you need to find a good low or no interest credit card or the fees will defeat the entire purpose of your transfer. A card like the MBNA Platinum Plus Mastercard offers a 0% balance transfer fee, and others have under 2%, a good offer.

Debt Consolidation Option #4: Borrow from a life insurance policy

This is not the best option for most people, but it is a good last resort if you’ve tried everything else. If you’re looking at bankruptcy or a similarly unpleasant legal situation, you can try to take out the cash amount that the policy is good for, use that to cover your debt, and slowly pay back your policy. This is risky though because you may not be able to pay back the policy, leaving your survivors without the insurance they depended on.

Debt Consolidation Option #5: Borrow from retirement plans

Again, this is not the best course of action, and it should be avoided unless you have no other choice. It is much smarter to combine credit cards into one payment or opt for a low APR loan as mentioned above. If all else fails, you can usually borrow against your 401K. You will have to repay this loan within five years generally. Otherwise, you’ll be taxed heavily for early withdrawal of the plan. Additionally, you’ll be charged the full amount of the plan if you lose your job while still in debt.

Of course, avoiding debt by keeping healthy spending habits and responsible credit card payments is the best method of all. But, if you’ve found yourself knee deep in debt, these credit card debt consolidation techniques can really help you get out of that hot water and back on solid ground.

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