Make A Balance Transfer
If you have several credit cards with high rates, you can balance transfer to a low or zero rate card. If you transfer a credit card debt with a 17% rate to a new card with a 10% rate, your monthly payments will decrease. And the debts on your credit card will reduce.
It’s better to transfer your debt to a card that has a zero interest rate. That way, you’ll not pay any interest within 6-18 months. You can increase your payments for each month during the free period and get out of debt before the period ends.
Even if you're not able to pay all, you would've paid substantial amounts to get you out of debt soon. But should you choose this option, we recommend that you go over the terms and conditions before proceeding with the sign-up.
That’s because the transfer fee could be so high it can clear off the savings you would acquire if you transfer your debts. Also, find out the interest rate you’ll have after the free period ends. You could have an interest rate high up to 19%.
Ideally, that wouldn't be a problem if you paid off all your debts or if the remaining loan debt is appreciably low. If not, then you could fall in the debt zone again.
Acquire A Debt Consolidation Loan
You can use a debt consolidation loan as a gateway to debt relief. If you have a house or there’s equity in it, you can acquire a Homeowner Equity Line Of Credit (HELOC) or home equity loan. With that, you can use the earnings from the loan to get rid of any other debts.
You'll only make a single payment each month, which is significantly less than all the total debt payments you make. The reason behind it is that the interest rate on the HELOC or home equity loan will be low compared to the interest rate on the actual debt.
For example, if your credit card debts have a 17% interest rate or more, consolidating them into a home equity loan can decrease the interest rate to 5% or less. Also, the HELOC can have a lower rate.
If you don’t have a home yet or that much equity, the unsecured debt consolidation may be the best alternative.
That means, you don't need collateral to secure a loan. However, it may come with a higher interest rate, which can be an issue if you're already in deep debt. Keep in mind to have a good score credit so that you'll have a low-interest rate.
The Common Disadvantage Between Debt Consolidation And Balance Transfers
The downside to both balance transfers and consolidating debts is that it doesn’t decrease your loan debts. If you consolidated $30,000 or transferred $30,000 to a different credit card with a low rate, there will still be $30,000 to pay.
And even though consolidating your debts comes with better low-interest rates, the cost incurred will be massive in the future. The reason is that it takes too much time to pay off your debt. Home equity loans can take 30 years, while HELOC typically takes seven or ten years.
If you compare them to the snowball method, you could clear all your debts in three years or less.