If you have several debts, you need to merge them into one payment. This method of reducing debt burden is called debt consolidation, and you should consider it for the following reasons:
- To pay off higher interest debts so that you can be left with one low-interest loan
- To simplify your monthly payments by having a single one
To consolidate your debt, your first choice would be approaching your local credit union or bank to see if they can offer any help. Here are the options that you should consider:
Add the Debt to Your Mortgage
Do you have a mortgage? You should check whether you have enough equity in your house to use your mortgage for debt consolidation. This is a great option because mortgages usually have lower interest rates than other loans. Moreover, mortgages can be amortized over twenty-five years.
This means that you will be able to arrange a lower monthly payment than with other loan types. If you choose this route, you should pay off the extra mortgage as fast as possible. When you find yourself adding debt to your mortgage frequently, it means that you are spending more money than you are making, and it will take a long time to pay off your mortgage.
Get a Debt Consolidation Loan
Can your bank or credit union provide you with a debt consolidation loan? These institutions are usually willing to lend individuals up to 10 percent of their net worth on unsecured bases. This means that if you want a debt consolidation loan of 10,000 dollars but you have a net worth of 10,000 dollars only, your request will probably be rejected.
However, you will probably be given an unsecured loan of 1,000 dollars. When jobs are easy to find and the economy is doing well, banks might give you large amounts of money without asking for security. However, this is not the norm but an exception.
If you approach your credit union or bank for a debt consolidation loan, they might be willing to give you a secured loan. When borrowing online, make sure that you use only BBB accredited debt consolidation companies. Doing so will keep you from falling into the hands of unscrupulous companies.
Even with a debt consolidation loan, if you fail to create a good spending plan, you could keep relying on credit and drive yourself deeper into debt.
Ask Family Members for Help
If your credit union or bank cannot offer any help, then you should see whether a family member is willing to lend you money. However, you should not get upset if your well off relative refuses to give you money. Everyone has a right to use their money as they please.
Moreover, lending money to a member of the family involves added risks. For instance, if a relative loans you money and you end up losing your job and the ability to repay it, your relationship will suffer. If your relative cannot forgive you this debt, your relationship will be strained forever.
A sensible relative might be unwilling to put himself or herself in a situation like this. If you get money from a relative, you should honor your agreement and pay it back on time.
If you cannot get money from a relative or financial institution, you should consider selling some assets to pay off your debts. Moreover, you can downsize your lifestyle by cutting out any expensive hobbies or expenses. You can also increase your income by applying for a second job – this will give you more disposable income for paying off debts.