Debt relief doesn’t always mean endless visits to debt management companies and meetings with specialists. For those who want another option, we encourage you to try to do-it-yourself. While more extreme debt problems might require some professional help, if you have low to moderate debt and want to try to fix it yourself there are several options available for you to try, including DIY debt consolidation.
Best Ways To Consolidate Debt Yourself
There are several programs you can use to consolidate your debt. The one you choose should be based on your specific circumstances and the types of debts you’re looking to pay off. Here are a few to consider.
1. Best Ways To Consolidate Debt: Debt Consolidation Loan
A debt consolidation loan involves rolling several eligible debts into one loan, ideally with a lower interest rate. You’ll be left with one loan payment instead of many, which will be easier to manage. And with a lower rate, you can save money on interest over the long haul, which can help reduce your monthly payments.
Benefits Of A Debt Consolidation Loan
There are several perks of a debt consolidation loan to consider:
Save On Interest
If you’re able to secure a lower interest rate on a debt consolidation loan compared to the rates you’re paying on your current debts, you’ll save on interest costs. Depending on what you’re currently paying versus the rate you can get approved for on a debt consolidation loan, the savings can be significant. If your credit score or financial situation has improved over the recent past, the odds of getting a competitive rate are in your favour.
Lower Monthly Payments
Not only can a lower interest rate reduce what you spend in interest, it can also help bring your monthly payments down. And if you extend the loan term, you can reduce your monthly payments even more,and have more time to fully repay the entire loan balance.
Pay Off Your Debt Quickly
Making the minimum payments each month means it will take you much longer to repay the entire debt balance. But with the help of a debt consolidation loan, you can pay off your debt quicker. Plus, if you can snag a lower rate, you can put more money towards the principal portion of the loan, which will help you pay off your debt more quickly.
2. Best Ways To Consolidate Debt Yourself: Credit Card Balance Transfer
A balance transfer involves transferring high-interest credit card debt to a lower-rate credit card. The lower interest rate means you’ll be paying less in interest and more toward your principal.
A balance transfer credit card is one that offers a very low-interest rate during a promotional period, often at 0%. During this introductory period, you can take advantage of the low rate to pay down your credit card debt. Just keep in mind that if you do not repay your balance by the time the zero-rate period is over, your outstanding balance will be charged the card’s regular rate, which can be well over 20%.
Benefits Of A Credit Card Balance Transfer
There are many reasons why you may want to consider transferring your credit card balance to a card with a low introductory rate:
Accumulate Less Interest
The purpose of a credit card balance transfer is to help you whittle down your credit card debt by paying as little interest as possible. If the balance transfer card has a promotional interest rate of 0%, for instance, you can repay your outstanding balance without accruing any more interest.
One Single Payment
If you have a handful of credit cards that all carry a balance and come with higher interest charges, transferring them all to one low-rate card will save you money and streamline your credit card payments.
Pay Off Your Debt Faster
With less interest to pay, you can reach your goal of paying off your credit card debt sooner rather than later.
3. Best Ways To Consolidate Debt Yourself: Use A Home Equity Loan Or HELOC
If you own a home and have equity built up in it, then a home equity loan or home equity line of credit (HELOC) may be available to you. Both of these options let you borrow against the equity in your home, which you can use for a variety of purposes, including consolidating all your debts.
How Does A Home Equity Loan Work?
With a home equity loan, your lender will provide you with a lump sum of money, which you will repay through regular installment payments over a specified loan term. Plus, you may qualify at a lower interest rate compared to what you’re paying in other debts since your home collateralizes the loan.
How Does A Home Equity Line Of Credit Work?
A HELOC works a little differently, as it’s not technically a loan but a line of credit. It works similarly to a credit card in which you’re given access to a specific credit limit.
You can draw from your equity as needed and use the funds to consolidate your debt or for a variety of other purposes. You’re only charged interest on the amount you withdraw rather than the full credit limit. Moreover, for repayment, you can choose to make the minimum payment only or make interest-only payments.
Bottom Line
If you’re struggling to manage your debt, consolidating it is just one of the many debt relief options available in Canada. You can always opt for a debt settlement, a debt management program, a consumer proposal or in more severe cases bankruptcy. Speak to a credit counsellor to help you find the best solution to your financial situation.
