DIY Debt ConsolidationBy Caitlin in Debt
Debt relief doesn’t always mean endless visits to debt management companies and meetings with specialists. For those that want another option, we encourage you to try to do-it-yourself. Obviously the direst situations might require some professional help, but if you have low to moderate debt and want to try to fix it yourself there are several options available for you to try.
If you decide that DIY debt consolidation is the best option for you and your financial situation it’s very important that you know exactly what each option entails and how to go about applying them properly. Your main goal should be to not worsen your financial situation. If you chose one of the DIY debt consolidation option below and after a while feel like you’ve either made no progress or your debt has grown then you might want to think about contacting a professional debt counselor who can help you.
Conquering your debts and becoming debt free on your own is a great feeling, that’s why we suggest and encourage you try it on your own first, here’s all the information you need to get started.
Option 1: Balance Transfer
If your primary concern is your credit card debt then a balance transfer might be your best option. To complete a balance transfer you transfer your balances from your high interest credit cards to a credit card with a significantly lower interest rate. The point is to combine all your credit card debt onto one card so that you only have to make one monthly payment and hopefully you’ll save money on interest which will allow you to pay off your debt quicker.
While a balance transfer is a viable option, it doesn’t always work for everyone. To successfully transfer your credit card balance you must have a high credit score so that you can be approved for a card that has a low interest rate. You must also be able to find and then qualify for a credit card that has little to no balance transfer fees, at least for an introductory period.
There are a few issues you need to be aware of before you settle on a balance transfer for debt relief:
- Fees: The problem is that most credit cards have fees associated with balance transfers, which for you will defeat your whole purpose of trying to save money.
- Credit Score: If you have a low credit score you’ll have a lot of trouble being approved for a credit card that has a low enough interest rate to make a balance transfer worth your time and effort. If you complete a balance transfer to a credit card that has a higher interest rate you could actually make your debt worse without even spending a dollar.
- Spending: For a balance transfer to work you must commit to not using your credit card that now has no balance. Making new purchases with your now debt free credit card will only make your financial situation worse.
Option 2: Unsecured Debt Consolidation Loan
An unsecured debt consolidation loan will allow you to pay off your credit card debt or other high interest debts. Once your debts have been paid you’ll then only need to worry about making one loan payment each month. Your debt consolidation loan will need to have a lower interest rate than the one you’re currently paying, this way you’ll pay less per month but will get out of debt quicker.
Much like a balance transfer, you’ll need to have a high credit score to qualify for a debt consolidation loan with a low enough interest rate. Finally, you’ll need to stop increasing your debts. If you’re committed to being debt free then you need to work hard so that you don’t end up back in the same place you started.
Option 3: Secured Debt Consolidation Loan
A secured debt consolidation loan is similar to an unsecured one; it will allow you to consolidate your high interest debts. The main difference is that with a secured loan you’ll need to put up some kind of collateral. In most cases people will use their house as collateral; this is why this type of loan is often referred to as a home equity loan. The major downside to this type of loan is that if you don’t make your payments you put your home at risk. This is why most experts will advise against a home equity loan, especially if you’re going to use it to pay off your credit cards.
The reason why a secured debt consolidation loan seems like such a great option for many people is that because it’s secured your credit score doesn’t have to be as high. This type of loan isn’t all bad and it could end up being the best option for you; just remember that your creditor could end up taking your house if you can’t pay off your loan.
Do-it-yourself debt consolidation is a great option for those who want to become debt free on their own. Do some research, chose the best option for your debt situation and then set your plan into motion. The sooner you get started the sooner you’ll be able to say your debt free and you did it all by yourself.
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