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When your debt becomes unmanageable, it may seem tempting to simply avoid paying some creditors for a month or several months. This leads to late fees and increasing interest rates, and debts that are severely past due may be sent to collections. All collections stay on your credit report for seven years, and multiple collection accounts on your credit record will reduce your score. The best option for unmanageable debt is consolidation. These are a few legitimate ways to consolidate your debts.

Zero-interest Credit Card Balance Transfer

If most of your unmanageable debt is from credit cards, a transfer may be the best option. Balance transfers are ideal if you can pay off your debt within a year or less. Many credit card companies offer cards with zero-interest introductory periods. Plan on paying off most or all of the balance within the introductory period. With some cards, this period is as generous as 18 months but may be six or fewer months with others.

There may or may not be a balance transfer fee. Most credit card companies waive the fee during a promotional period. You simply transfer all large balances from high-interest cards to the new card, pay the same as you would toward the multiple cards each month in one payment on the new card and watch your balance drop. Avoid using your other credit cards while you pay down the new one. After you pay off your credit card debt, make a habit of paying off purchases after you make them. While this option makes your debt manageable, it does require a decent credit score. People who have a score of 640 or higher usually qualify for one or more zero-interest credit card offers.

Home Equity Line Of Credit

If you own a home and have a variety of different debts to pay off, a home equity line of credit may be the ideal solution. With this option, you borrow against the equity in your home. You are usually allowed a certain limit and can borrow up to that amount or less. You can usually qualify even if your credit score is not great since you are offering your home to secure the loan. However, offering your home as collateral also puts you at risk of losing it if you default. Be sure that you can make timely payments if you choose this option.

Debt Consolidation Loan

Many people confuse these loans with debt settlement. Settling debt involves contacting individual creditors, agreeing on a lower amount and paying it off. Debt settlement companies will do this for you for a fee. However, they pay off one account at a time. With a debt consolidation loan, the lender loans you a certain amount of money, which is usually enough to cover your existing debt. You use that money to pay off your creditors individually, and you pay the consolidation lender a specific amount each month.

This option eliminates the higher cost of paying toward multiple accounts with differing interest rates each month. Most consolidation loans have lower interest rates. You still need decent credit to qualify for a standard consolidation loan or a personal loan from a bank. The fixed installment payments make it easy to manage your debt each month. You should avoid incurring new debt while you pay off the consolidation loan.

Life Insurance And 401(k) Loans

You can borrow from some life insurance policies and 401(k) plans. However, there are usually fees for early withdrawals and loans. If you withdraw the funds completely, you may lose your coverage. If you take out a loan and cannot repay it, you will definitely lose your coverage. The interest rates are usually reasonable. For policies that were recently implemented, you may not be able to borrow much. Life insurance and 401(k) plans tend to have low cash values during their first few years of existence, and you can only borrow against the current cash value.

Tips For Debt Consolidation

If you plan to apply for personal or consolidation loans, keep in mind that inquiries can hurt your credit. Many online lending platforms only use soft inquiries, which do not significantly affect your score. Hard inquiries from banks lower your score temporarily, and multiple hard inquiries have a noticeable impact. If you must use traditional lenders, keep applications to a minimum, and plan on accepting an offer immediately. Also, do not use payday loans. These are only for short-term emergencies and should never be used as a debt consolidation tool due to the high interest rates and fees. You can also talk to a free credit counseling organization to discuss your consolidation options and choose the right one for you.