Neon Funding and Credit 9 have joined Cobalt Advisors and Saxton Associates in flooding the market with debt consolidation and personal loan offers in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Neon Funding, Cobalt Advisors, Saxton Associates, Hornet Partners, Piper Funding, Carina Advisors, Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Although credit cards have their pros, large balances on multiple credit cards can spell big financial problems for you. Paying off such liabilities can be difficult because the interest rates keep increasing at a fast rate. Typically, the interest rates on credit cards happen to be quite high. However, that does not mean that you cannot pay off all your debt.
With a bit of initiative on your part, you can resort to do-it-yourself debt consolidation to finally become debt-free. You just have to know which do-it-yourself debt consolidation option is the best for you, out of the several possible choices.
Here are the different methods for do-it-yourself debt consolidation.
Credit Card Balance Transfer for Do-It-Yourself Debt Consolidation
You can take advantage of a balance transfer credit card for do-it-yourself debt consolidation. Balance transfer cards have a few features that make them a worthwhile option.
Zero Balance Transfer Fees
These cards have little or no fees on balance transfer. Hence, you can transfer balances from different cards into your balance transfer card account. This is a simple and affordable way of consolidating debt. You will not have to make several monthly payments. Instead, you can make just one payment at the end of the month to simplify your debt payment. You should look out for one thing, though. The credit limit on your balance transfer card should be high enough to accommodate all of your balances.
Zero APR
Many of these balance transfer credit cards also have zero APR introductory periods, during which you will have to pay no interest. Not having to pay interest makes debt payment much easier. Hence, balance transfer cards can be an effective do-it-yourself debt consolidation option. You will have to pay off your liabilities within the zero APR time period, though. If you fail to pay off your debt within this time frame, then you may incur very high interest. This might defeat the purpose of do-it-yourself debt consolidation.
Home Equity Loan for Do-It-Yourself Debt Consolidation
Instead of letting your home equity sit idle, you can put it to good use via do-it-yourself debt consolidation. You can get a loan against your home equity. Debt on your credit cards can be cleared with this loan. You will then have to pay off the home equity loan without having to worry about getting out of your credit card debt.
Lower Interest Rate
Since home equity loans are secured loans, they carry a lower interest rate than credit cards. However, they are secured against your home equity. Failure to pay off the home equity loan in time can lead to your home foreclosure. This is a key drawback that you must consider. Therefore, make sure to take out a home equity loan only if you are certain that you can pay it back in time. Failure to do so may mean losing your home.
Thanks to the lower interest rate, home equity loans are a good do-it-yourself debt consolidation option.
Types
You can use your home equity in two different ways. Your home equity can be used for securing either a home equity loan or a home equity line of credit. What is the difference between these two? As you may have guessed, a home equity loan is similar to a conventional secured loan. Such a loan will provide you with a fixed amount of money that you can pay off later. You cannot take out any extra amount later on through this method. But with a home equity line of credit, you can keep borrowing money as you do with a credit card.
High Credit Limit
Another major advantage of such loans is that they offer a higher credit limit than many other loans. However, you should borrow only that amount which you can pay off later easily.
Debt Consolidation Loans
The key purpose of a debt consolidation loan is to erase your debt and pay off all your credit card balances so that you will have to pay the debt consolidation loan itself alone. All of your balances are, in turn, replaced by one loan. Hence, these loans are a useful choice for do-it-yourself debt consolidation.
You can get debt consolidation loans from banks and debt consolidation companies. Although many debt consolidation companies claim to be non-profit, they may not necessarily provide affordable loans. You must watch out for the extra fees that may increase the cost of your loan substantially. You should always check the terms and conditions of the loan and take note of all fees to ensure that you don’t end up with an expensive loan.
Borrow from Your Life Insurance as a Means of Do-It-Yourself Debt Consolidation
This is not the best option for do-it-yourself debt consolidation. Borrowing against your insurance policy may not be the best choice. However, it is better than bankruptcy. Therefore, you may consider this do-it-yourself debt consolidation option only if you are facing a major financial crisis such as bankruptcy.
Through this method, you can obtain the cash value of your policy as a loan. You may use this loan to pay off your credit card balances or other debt. You will then have to pay this loan back.
Reduced Benefits
Although a life insurance company will not require you to pay back the loan on time, this may prove to be detrimental. When the time comes for paying death benefits, the insurance company will deduct your outstanding loan amount from death benefits. Your survivor may receive little or no benefit from the policy. This may defeat the purpose of the life insurance policy.
Retirement Funds
Borrowing from your retirement funds is a possible do-it-yourself debt consolidation option. However, it is the least desirable option as you are taking money out of your life-time savings. This may possibly leave you with very little or no funds for your retirement. Hence, you may consider this option only if you have exhausted all other possibilities.
Drawbacks
If you don’t pay back your 401k loan in five years, then it will be treated as an early withdrawal. As a result, you will then have to pay a heavy penalty and tax. It is advisable to think very carefully before taking out money from your retirement accounts.