If you have lingering credit card balances, why not consolidate your high-interest rate debt with a loan to lower your monthly payments? Debt consolidation is a smart way to lower your monthly payments and make your repayment plan more manageable. It’s also a starting point toward a debt-free future. Here are several possible loan options for clearing away unwanted debt.
The rise of online, personal lending has opened doors to many who previously could not or currently do not qualify for traditional loans. Peer-to-peer lending (P2P) allows one person to lend money to another or a peer via a website or mobile app. The service matches a borrower with a lender. The rate on this type of unsecured loan is often lower than many credit card rates. You don’t have to provide collateral for this type of loan.
Sometimes, even with a low credit rating, the individual lender may be more willing to help with debt consolidation and grant you the requested funds. It’s important to do your homework if turning to this type of product to ensure it’s not a scam.
The downside? The personal loan may come with a higher interest rate than other types of loans, such as a home equity line of credit (HELOC). Ask your financial representative if a personal loan is the best and fastest option to help you get rid of your credit card debt.
A HELOC is a secured loan where you borrow against the equity that has built up in your home. Using that equity as collateral, a HELOC may be the better option over the unsecured loan. It often comes with a lower interest rate and the borrower may qualify for a tax deduction. (Ask your tax advisor for details). Like credit card terms, there’s a credit limit on this account.
Family and friends
Asking a close friend or family member for a small, short-term loan may be an option for debt consolidation. Here you have the possible benefit of a low- or zero interest rate. But here’s a word of caution: treat this new business relationship just as you would any traditional loan application. Draw up a contract, which includes the terms of the agreement. Include the amount requested and timeframe for repayment — and repay it on time!
To make these changes stick long-term, you’ll want to put the credit cards away. Otherwise your hard work to reduce your debt will have been for nothing. If you’re unsure which debt consolidation option is right for you, seek the advice of a financial professional.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Consult a loan advisor for additional guidance.