Alternatives to debt consolidation

Debt consolidation loans can be great, if you qualify for them. And if you are ok about giving up the credit cards that will be included in the consolidation loan. But if you are not ok with that or just can’t qualify for a debt consolidation loan. Here are some alternatives.

Time to talk to your creditors

Individuals regularly find alternatives to help pay off debt quicker simply by speaking to lenders. Many lenders will change payment terms to help a debtor who’s in arrears. Should you be not able to pay for your monthly credit card statement, call the business and let them know about your scenario. Most businesses will help reduce your payment, but may not let you continue to use the card.

Refinance vs Debt Consolidation

If you are a home owner, refinancing your home and getting a home equity line of credit may be the answer to your prayers. Mortgage rates are low, making it an excellent time for debt consolidation in this manner. Your mortgage payment could wind up lower than what you were paying initially and with your line of credit you can pay off interest debt.

Can a debt management company help you?

Debt management companies help their clients create budgets based on their current financial situation. They also will help you by contacting your creditors and negotiating a lower interest rate. Debt management is a good alternative for people whose debt to income ratio is lower than what is required by a debt consolidation company. Some debt consolidation companies won’t work with consumer with less than a certain amount of debt.

Should you tap into your retirement funds?

You might access your retirement funds to repay high interest debts. Many people resort to this when the debt is so crushing that they see no other alternative except for perhaps bankruptcy.  But its not as easy as it used to be to file for bankruptcy protection.  Just keep in mind that this is your RETIREMENT fund!  Make sure you start to put away money to replace the money you use for the debt consolidation.  Also don’t forget that accessing your retirement funds will come with tax penalties and fees.

Is bankruptcy the answer to your problems?

You might want to consider filing for insolvency, if you are struggling financially. The most common type is chapter 7 bankruptcy.  This will get rid of most debts.  The other one is Chapter 13 which is when the bankruptcy court puts you on a repayment plan.   Whichever form of bankruptcy you file, it will be a black mark on your credit report that may be their for 10 years!   Also just because you WANT to file bankruptcy, doesn’t mean you will be able to.  You will have to go thru credit counseling and meet with a financial manager who will advise the courts on your ability to pay your outstanding debt.

Staying out of debt

Regardless of which route you decide to take, you need to start to create a budget you can live with. Once you get out of your debt troubles, you don’t want to get back into the same situation. Understanding how you got to this point, learning good financial management skills and re-evaluating your current spending habits are just the first steps you will need to take if you wish to be truly financial free of debt.