Alternatives to Getting a Consolidation Loan
While debt consolidation is great for managing debts, it may not suit everyone. If you’ve tried debt consolidation and it didn’t work well for you, you need not despair. There are alternatives to this arrangement that can help you take charge of your debts.
Here are some alternatives to getting a consolidation loan.
1. Transfer Of Credit Card Balances
Technically, a credit card balance transfer is a way of consolidating debts. The trick here is to use a credit card with a lower interest rate to settle a debt on a credit card with a higher interest rate, rather than going for personal loans or other term loans.
Once you’ve done this, it’s advisable to stop using the credit card with the high-interest rate for some time. If you continue using it, you’ll be getting into more debt, and you shall not have solved your problem. Before you transfer your credit card balance, do your math to confirm whether you are going to benefit.
2. Debt Refinancing
While the processes of debt refinancing and getting a debt consolidation loan are somewhat similar, there are some key differences. Refinancing means paying off a debt with a loan that offers better terms. For example, if your current loan charges an interest of 6%, you can use another loan charging an interest of 4% to pay it off.
Remember, low-interest rate loans may take longer to repay, so you have to do your math well to find out whether you are going to benefit from the refinancing. Debt consolidation loan, on the other hand, means combining two or more loans/debts into one large one.
3. Debt Management Plan
Debt management plans are services offered by credit counseling agencies. These agencies will help you settle your loans through negotiation with your creditors. The agencies may request your creditor to decrease rates of interest, waive, or reduce fees and finance charges.
In essence, they’ll negotiate to lower your monthly repayments. However, you’ll have to pay a monthly fee to the agency. The advantages of a debt management plan include:
- Collection calls will stop
- Your credit score will improve
- You’ll clear your debt faster
- Your interest rates will go down
- Your monthly obligations will go down
- You’ll only make one payment monthly
Debt management plans will require you to close your credit card accounts in the debt management plan to stop you from taking more debt as you clear the outstanding ones. Also, you must pay regularly for you to benefit from this plan.
4. Debt Settlement
Just as the name implies, debt forgiveness involves a formal request to your creditors to cancel all or some of your debts. Usually, a debt settlement company will negotiate with your creditors on your behalf.
You must be deeply in debt for you to benefit from this option. Usually, you must owe over $10,000 and must be at least 6 months late with your payments of credit card and other unsecured debts to benefit from debt forgiveness.
The greatest advantage of a debt forgiveness program is that you could end up paying a reduced amount.
Bankruptcy is another option to have your debts discharged. This is a legal process that discharges you from any debt obligations. When successful, your creditors will be stopped from making any payment demands on you.
Liquidation or Chapter 7 bankruptcy demands that you sell all your property and assets and use the proceeds to settle as much debt as you can. In Chapter 13 bankruptcy, you’ll involve a credit counseling service to restructure your debt repayment. Debt restructuring means your repayment period will be extended to make it easier for you to settle your debts.
There you have it. The above are the top five alternatives of getting a consolidation loan. You can speak with a financial expert to help you choose which alternative is best for your situation. Weigh the advantages and disadvantages of all of them before settling on one.
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