Getting a debt consolidation loan is one option to pursue if you are stuck with a lot of high interest bills and expenses. The high interest may contribute to you with constantly feeling under pressure and dealing with the stress that you won’t have enough money to meet your financial deadlines. It is hard to negotiate for a lower rate with your lender so you might wish to get a loan to consolidate your debt. The following are three creative ways on how you can use a debt consolidation loan to save money.
1. Online Personal Loan
The first method is to get an online personal loan to consolidate your debts. You can take out the online personal loan from the online lender or peer to peer platform. You only have to apply the amount that is equal to your debt from the lender. The lender will assess your credit score to determine your risk level. If you have a low risk, the lender will quickly approve your loan. The lender can distribute the funds to all your creditors or you can use the funds to repay back the creditor yourself. The advantage is that now you only have to make a single monthly payment to pay off your debt.
2. Home Equity Loan
The second method is to borrow against your home equity to consolidate your debt. There are two ways to borrow against your home equity including home equity loan and home equity line of credit. In the loan, you receive the full amount in closing. In the line of credit, you will receive a checkbook that you can write check. The amount you write in the check is the amount you borrow. The interest will only be charged on the amount that you borrow. Home equity loan can have a repayment period of 15 – 20 years. You must be responsible when you use the home equity loan to consolidate your debt. If you don’t, your house can get repossessed by the bank.
The third method is to borrow against your retirement such as 401 (k) or 401 (b) or pension. This is a last resort for people who cannot get a loan from the bank or credit union to consolidate their debt. The advantage is that it has more favorable lending terms when coming to repaying the loan. It is much easier to pay back a retirement loan than when you are borrowing from a lender. This type of loan also tend to have lower interest rates and fees. The downside is that you could lose your retirement savings if you fail to pay back on time. Prior to borrowing against your retirement, you should call the bank and ask how much you have in the account.