Debt consolidation is a debt management strategy many use to get out of debt. It involves applying for a new loan to pay off existing ones. It combines these multiple loans into one enormous debt with lower monthly payments or lower interest rates, or both. There are several approaches to consolidating your debt, from taking out new personal loans to finding a peer-to-peer online lender. Here are the options available when consolidating your debt according to knowledgeable associate at Symple Lending.
Different Approaches to Consolidate Unsecured Debt
There are several options available for debt consolidation, and your ideal approach depends on your situation. It would help to consider professional advice from experts like Symple Lending instead of assuming an approach will work for you.
Here are your debt consolidation options:
Debt Management Program
Debt management programs create the best approach to reducing the interest on your credit card loan while creating affordable monthly payments. The ideal program should clear your debt within five years. Start with nonprofit credit counseling agencies as they analyze your financial situation before curating a personalized package.
There are several benefits of taking the debt management program route. It reduces interest rates to as low as 8%, helping you pay off your debts faster. And since it’s not a loan, you can withdraw from the program whenever you want.
Personal Loans
The personal loan approach is traditional debt consolidation. It involves combining multiple loans into a single monthly loan. The loans are available from banks, online lenders, and credit unions and don’t require collateral. You can also take to a friend and receive the agreed financial assistance to clear the debt.
Personal loans allow those with poor credit scores to get out of debt faster using fixed monthly payments at lower interest rates. Use a calculator first to determine how feasible the option is.
Peer-to-Peer Loans
You can also consolidate your debt using peer-to-peer lending. It involves directly connecting ready lenders to borrowers without involving intermediaries. Interested borrowers fill out an application on the lending website and get assigned a risk category based on their financial profile to get a loan.
Investors then review your application and offer loan terms and interest rates depending on your situation. If you accept the offer, the money gets transferred online, and you repay the loan in fixed monthly installments for 3 to 5 years.
Retirement Loans
For those with 401(k) accounts, you can borrow from the retirement budget balance to get yourself out of debt. However, most employer plans don’t allow this strategy. The borrowed money will be a loan you’ll have to repay in five years.
Instead of borrowing, you can withdraw the money from your IRA account to clear your balance. The only downside is individuals younger than 59½ will have to pay withdrawal penalties and decrease their retirement savings.
Debt consolidation is a practical get-out-of-debt strategy that offers a variety of options. It would help to observe your financial situation and consult an expert before deciding which is best. Choose the option you can comfortably make payments to guarantee you peace of mind.
