Consolidating your debts with a loan might seem like an easy fix, but the reality is that you could end up paying back even more – and for longer. To avoid high costs later on down the line, it’s important to look at all of the other options. Here are some alternatives to debt consolidation…
The DIY Method
There is nothing that a debt consolidation program can do for you that you can’t do for yourself. They simply negotiate on your behalf – for a fee – so why not save your money and cut out the middleman? Your first step in getting out of debt is to prioritize each one. Then you can attack those which are costing you most money and have the higher interest.
Keep up your minimum payments on your other debts. One by one you should see them shrink – which ultimately will lower your monthly payments, and enable you to pay more money towards them. This is sometimes called the snowball method.
Speak To A Credit Counseling Agency
There are plenty of organizations out there that will give you free information about how to start managing your debts properly. Be careful to use a reputable agency, though. Unfortunately there are many illegitimate services around which could charge you high fees for their service.
Some may even operate under the ‘not-for-profit’ banner. Your local consumer protection agency will be able to help you find a reputable and safe option.
Switch Credit Cards
If you still have a good credit score and are paying a lot of interest, think about switching to a new one, with a lower introductory interest rate. This will mean you can attack the debt for a set period knowing that every cent you pay back will actually reduce your debt. Once the introductory rate is up, just switch again.
Get A Short-Term Loan
As a rule, you should never get into more debt to pay off an existing debt. However, there may be a time when you need to make a quick payment but don’t have the funds. If you can guarantee to yourself, you will be able to pay back the money on time, then the initial charge could be worth paying. This will help you avoid entering a debt consolidation plan and could save you money in the long term. But, please: be careful.
Head to your local payday loan company or go online and try and find companies that can make you a quick transfer. It’s also wise to find a company that doesn’t charge you for early repayments, such as American Web Loan. The earlier you pay it back, the less chance there is that your debt will escalate.
Use Your Life Insurance
Some life insurance policies will allow you to borrow money against the value of your policy. You will need to do lots of planning for this as there could be tax implications. Should you not pay it back before you die, there could be repercussions for the amount your beneficiary receives.
However, it is relatively low-cost and low interest – certainly when compared to some debt consolidation plans, which can charge anything up to 18% of what you owe.
Debt Management Plan
Debt management plans (DMPs) are set up with your lender by a middleman, such as a credit counselor. They will try and come to an agreement on your behalf, and may be able to negotiate getting your interest reduced.
Lenders may even agree to freeze the interest entirely, depending on your situation. However, bear in mind that when you enter a DMP, it will be placed on your credit report.