Excess debt leads to unwanted stress. If you are in debt, you may have considered debt consolidation. However, you might be worried that debt consolidation can damage your credit. There is no one-size-fits-all solution to consolidating your debt without harming your credit. However, different options are available that might be right for you based on your financial circumstances.
Options for Consolidating Debt
One way to eliminate debt is the snowball method. You start paying the minimum balance on all your debt. However, you also pay as much as you can on your smallest balance first. Once that smallest balance is eliminated, you continue the process with the remaining debt until it is paid off in full.
Transferring your balances to a credit card is another way to go. Or you may apply for a consolidation loan. This step requires self-discipline. If you need to borrow more money, you could be tempted to start using one of your credit cards that has a zero balance. This might cause your debt to skyrocket, leading to bigger credit problems.
Get Help from Friends and Family
Taking help from your loved ones is one of the ways of debt consolidation without hurting credit scores. That being said, family relationships and money do not always go well with each other. If you borrow money from them, have a laid-out repayment plan. This allows you to build up your credit and keep a healthy relationship with the friend or family member lending you money.
The benefit of attacking credit this way is that there is no minimum eligibility requirement or strict loan terms. However, you must repay the loan to your family if you want to keep the peace.
Get a Personal Loan
Getting a personal loan could be a way for you to consolidate debt while protecting your credit. You have one payment instead of making several credit card payments every month. This option is only available to people who have good credit. According to the experts at SoFi, “Consolidating your credit card debt by taking out a small personal loan can result in a lower interest rate or more manageable monthly payments.”
Use a Home Equity Loan
Through a home equity loan, you can borrow money against the equity in your home. The cash you get can be used for whatever you want, including paying off your credit card debt. This is a tricky way to get out of debt. The home equity loan might provide you with lower interest rates, but your credit could be ruined if you default on your payments. The lender may have the right to begin foreclosure procedures on your property. Because of the risk involved, this should be one of your last options.
Getting into debt is easy. Getting out of it and staying debt-free can be a challenge. Debt consolidation options like personal loans, using your home equity, and borrowing money from friends and family can be a great way to simplify your debt payment. The key is to change how you view credit cards to prevent falling back into the debt trap.