How to Consolidate and Pay Off Your Debts

Sometimes we gather up debt from different sources until we find it impossible to keep up with the payment of these debts. This is one great reason to consolidate debt.

Debt consolidation entails combining numerous debts into one account. You take out a loan that pays up all outstanding debts. This leaves you with just a single debt to pay back. Instead of making several payments monthly, you make just one.

Most people think that to consolidate debt, they need to procure the services of a debt consolidation agency but the truth is: you can do it yourself. How do you go about it?

1. Borrow from your retirement account

If you have a retirement plan, you can borrow from it. There are however some accounts that do not give room for borrowing. If yours does, this is a simple and quiet way to pay off your debt without involving anyone.

Your payment will be deducted from your monthly paycheck. The only drawback is that the loan has to be paid within five years and if you decide to quit the job, you have to pay back the loan within sixty days.

2. Get a debt consolidation loan

A debt consolidation loan combines all your debts and pays them off. With it, you get a lower interest rate and a longer payment plan. Instead of making multiple payments per month, it leaves you with only one debt to pay.

With debt consolidation loans bad credit doesn’t count. However most times you need collateral to secure this loan. Instead of procuring the services of a debt consolidation company, it is better to opt for a bank loan with a lower interest rate.

3. Get a loan from your life insurance policy

If you have a life insurance policy, this could be a viable option for you. This however should be your last resort because tampering with this policy affects its beneficiaries. You can borrow from your life insurance policy as long as the loan is not more than the cash value of your policy. 

You are not required to pay this back. However, if you die before payment, the company will deduct the amount you owe from the amount which is to be given to the beneficiary.

4. Borrow from family and friends

Borrowing from family and friends could be a better alternative if you have a healthy relationship with them. Despite the high level of familiarity, this should not be taken with levity.  It should also be seen as an official transaction especially when it involves a huge amount of money

It is advisable to have a document detailing the terms of the loan. You should also make records of payments. This might seem unnecessary but it is needed to avoid misunderstanding and disagreements

You should also remember that all this would be futile if you do not watch how you spend. Acquiring more debts while you pay up existing debts does not help your finances. So while consolidating debts, try not to get into more debts.

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Created on Dec 15th 2017 04:18. Viewed 374 times.

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