The Simplified Way to Consolidate Debt Quickly
In order to learn about various ways of debt consolidation that will help you eliminate debt, we first need to get familiar with what debt and debt consolidation are.
What is Debt and How Does It Affect Your Life
I can describe this in two separate ways: through plain old words and with imagery. I am an artist, a writer, and a teacher, so I think I will use both. By definition, debt is something owed, which is normally money. Although any bill owed technically qualifies, when people say “debt” they usually mean bills that are overdue- things that they are behind on.
So we have now defined debt, but what is it really? To me, debt is like a bony hand crawling up my neck trying to choke the life out of me. It is a boulder that is attached to my waist as I am underwater drowning. My dreams of home ownership and financial security are sitting right on top of the water in the bright sun. I want to reach out and grab for it, but the boulder just keeps weighing me down.
Dramatic? Probably. True? Most definitely. And debt is dramatic, anyway. It is a horrible, seemingly hopeless thing to deal with- especially when you cannot find a way to detach the heavy boulder. Be truthful with yourself- if you are in debt, how often do you screen your phone calls to avoid debt collectors? How often do you look up and sigh when you check your mailbox? If you have never experienced this weight, you are a fortunate one.
How to Get Out of Debt
I learned long ago that to change a situation you must first face the situation, so let’s start there. I often laugh and, at the same time, want to yell at people who say of others, “Well, you got yourself into this situation, now get yourself out,” “Well, you should not have been so irresponsible,” or other things along those lines. How do they know how it happened?
I would like to make a statement right here and now: I do not know one single person who has ever chosen to get into debt for the fun of it. In fact, I cannot think of anyone I know that borrowed money with the intent of not repaying. There may be some people like that out there, but if there are, they make up a small portion.
How Do We Get Ourselves into Debt
Additionally, the majority of the people I know that got into debt due to being irresponsible were never taught how to be responsible with money. There are many adults who grew up with parents that were not open about their finances with their children. They felt it was not a child’s place to worry about grown up affairs. I understand the longing to protect your children and I believe those parents’ hearts were in the right place, but at some point, children have to be trained for adulthood.
People love to use the term “common sense” all the time these days, claiming that knowing you need to change your oil is common sense. How? How do you expect one to know that they need to get their oil changed if they have never seen anyone get their oil changed? Or been told that you have to do that? I do not know about schools now, but I went to a pretty good high school, and I do not even remember being taught financial literacy there.
Common sense means having good sense in practical matters. What is practical? The Cambridge English Dictionary describes it as “relating to experience, real situations, or actions rather than ideas or imagination”. So how can we expect someone who has no experience in real situations to use good sense? They do not know what good sense is.
Okay, vocabulary lesson is over. The point of my rant is that some people are not taught how to handle adult matters, so expecting them to do so is not fair. Always remember when you are tempted to judge others that you really do not know all the ins and outs of their lives.
Steps to Take When Getting out of Debt
For those of you in debt, start with:
Admit it
Admit that you are in debt- ignoring it is not going to help you. If you are in debt due to a lack of knowledge, admit it. If you are in debt due to an ex or job loss- both of which I have experienced- admit that, too. Be angry for a moment. Scream into your pillow if you want. You might even write an ugly letter to the cause of your financial downfall to get all your feelings out. Just burn the letter after it is over. This is not permission to start a fight- it is permission to get your emotions out of the way.
Feel better? Good, let’s move on.
Pick a date to face the music
If you do not understand the full amount of your debt, it is time to bust a move. Pick a day that you can take a few hours, at least, to organize your debt. That sounds a bit intimidating, doesn’t it? Organizing the chaotic debt? The good thing is that it does not have to be that intimidating, and you will feel empowered with each step you take.
There is a good chance that someone has told you to list them smallest to largest, stating that this is the most effect way to pay off debt. For some people, that is true. If your only option for paying off your debt is to make monthly payments, the debt snowball is a really good way to do it.
However, you are here to learn about debt consolidation- I promise we are getting there- so either the debt avalanche or listing by interest rates is the better option here. Why is that? If you choose to consolidate but cannot get the full amount you need, it’s best to pay off the most expensive debts and the highest interest rates first.
How to choose a listing method
Either way, there is a simple way to do this. There happens to be these handy dandy debt tracker apps that can be a huge help. After putting your debts into the debt tracker app, it should let you choose how to list those debts. The great part, though, is that you can change it at any time. So if you start with the debt avalanche but want to change to the debt snowball later, it is as simple as pressing a button.
These apps can also show you charts and graphs that break down your categories of debt, provide a debt repayment calculator that can help you see how long it will take for you to get out of it, and even help you make a plan to repay it all. I said they are handy. I really was not joking- I love mine. Even though the numbers are staggering, I still feel in so much more control having my debt so organized.
Pick Your repayment method
After you have put your debt into some sort of list, you need to consider how you will start marking those items off. Some common ways people pay off debt are:
through systematic monthly payments
consolidate debt into one monthly payment
pay it off with a lump sum from an inheritance or insurance settlement
file bankruptcy (this is not really paying off debt, but it is getting it off of your credit report)
in a chaotic, disorganized fashion (Hint: this one tends to take the longest)
No matter the repayment method you choose, you need one- preferably an organized one that lets you make progress.
Talk to Your Creditors
Before you make moves to pay your debt, you should first try to cut your debt. If you take a look at your debts, you are probably going to see a lot of interest. Most creditors are willing to cut down on the interest owed and settle your debt with you for a much lower price. In fact, if you have owed a debt for a long period of time, you have probably received a settlement notice. I love getting those offers because they often have an option up to or close to 50% off. Yay!
What is Debt Consolidation
When you consolidate debt, you are rolling all of your debt into one payment. Consider this: Let’s say you have three large storage buildings full of personal possessions (This is not as crazy as it sounds. My mom does.) Each of these storage buildings is costing you $50 per month, adding up to $150. That is just too much for you to afford in addition to your other bills, so you decide it is time to minimize.
You pull everything out of these buildings, let people come and buy what they want, give away some of it, and throw away more. When the day is done, you put your items back in the building. Suddenly, though, you realize that you only need one of those buildings. Now, you will only need to pay $50 per month- a whole 1/3 less than what you were paying. In this scenario, you consolidated your possessions into one building instead of three.
Consolidating debt is the same basic principle. You take out your debt, add it together for your total, make settlements to shave off some of the total cost, and finally roll them all into one bill. And almost always, you are decreasing the amount you are paying each month while getting interest off of your back.
Pros of Debt Consolidation
There are a lot of good things to say about debt consolidation as an option to pay off debt, mostly because it can actually help you do that- usually in a fairly stress free fashion.
You can actually breathe. Typically, having all of your debt rolled into one payment is much easier and less stressful than having to worry with them individually.
Your phone probably will not ring as much. If you are anything like me, 10 out of 10 calls on an average day are from bill collectors. I am not kidding. Rarely is it someone I actually want to talk to. And no, I am not anti-social, it is just that my friends, my sister, and I all have families and jobs. Occasionally, we can take a few minutes to catch up, but it is not every day. If all of my debts were paid, my phone would go days without ringing (oh, blessed silence!)
You will save a ton of money on interest. As long as you owe a creditor that charges interest, you will continue to be charged interest. The sooner you can get it paid off, the better. There are some people out there that pay so much interest, I guarantee if they could put that money away or invest it instead, they would probably get to retire around 20 or so years earlier than they planned.
Your credit score will increase. This will not happen immediately, but it will not take long to see improvement. And for those that think settling their debts will hurt their credit, that is not the case. Regardless of if you pay the full amount, the partial amount, or it just falls off of your credit report does not matter. Your score increases about the same amount.
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Cons of Debt Consolidation
There is not a lot of bad things to say about debt consolidation, but there are a couple:
In the beginning, you will probably see a negative impact on your credit. During the transition period between getting the loan and paying the debts, there is a period of time that your score will go down. This is because you are increasing the amount of debt you have while still owing the others. However, as you pay off the debts and they disappear from your report, your score will start to rise again.
It may provoke temptation. Once you get your slate mostly cleaned, you may be tempted to run out and get right back into debt. Refrain from this, please. If you do not, you will have your monthly loan payment and the new debt to deal with. Before long, you will be drowning again. I am not saying do not give yourself a pat on the back and maybe take the family out to eat to celebrate. I just mean do not dive head first into debt again.
If you are not very careful with how you do it, you might find yourself in a deeper whole than before. You have to consider all of your options and really think about how they might affect you.
Different Ways to Consolidate Debt
There are multiple ways to consolidate debt to consider. Before deciding on which way you want to go, consider your assets, your currently monthly bills, and your financial goals. The decision you make can affect multiple facets of your life, so it is important not to just jump into the decision.
Your decision should also take into consideration whether this is consumer debt or business debt that you are dealing with. With consumer debt, you are fully in charge of your decision. If it is business debt, the best thing to do is speak with a lawyer and any other party that has some ownership in the company.
Here are some ways that you should consider when you want to consolidate debt:
Hire a Debt Consolidation Company
There are debt service companies that will work with your creditors to consolidate debt. You pay the debt consolidation company a monthly payment and they take care of the debts. It can take years to get them all paid off, but the ones that are working with your consolidation company should, at the very least, stop harassing you. These companies do charge a fee for their work, but if you do not have the time, energy, or patience to do it yourself, this is a good way to go.
Transfer Your Credit Card Balance to Another Card
You might either have, or be able to find, a credit card with lower interest than what you are currently paying. If that is the case, you can likely transfer your debt to the lower interest card. You will still be charged interest, but at least it will be lower than what you pay now.
Home Equity Loan
For those who have equity in your home, you might consider borrowing against that. These are loans that are given against the amount of your home that you have paid off. Doing this means having a second house payment to make, but you do get long repayment terms.
Cash-out Refinance
A cash out refinance is similar to a home equity loan, but not exactly the same. With this, instead of having a second mortgage, a cash out refinance replaces your first mortgage. You borrow enough to pay off your original mortgage and get the additional amount that you need to consolidate debt. Then, you basically start over with your mortgage. This can be a great idea if you can find a cash out refinance loan with lower interest rates and better repayment terms than your original mortgage. If not, try looking for another option first.
Work with a Nonprofit Credit Counseling Organization
There are also nonprofit credit counseling organizations that can assist you. They can help you make a repayment plan to get out of debt. Some may also let you give them the money every month to repay the debts to ensure that it gets there. They also provide education to help you stay out of debt.
Cash Out Investments and 401Ks
No one wants to touch their retirement funds or investments to consolidate debt, but sometimes it is necessary. Consider paying off those debts to be an investment itself. If they are paid off, you do not have to worry with them when you do retire. And you can replace that money anyway. Just remember that you will likely be paying fees and you will pay taxes on that amount, so consider that before cashing them out.
Borrow Against Your Whole Life Insurance Policy
If you have a whole life insurance policy, you have the ability to borrow against the cash value to consolidate debt. Now, if you are thinking that you do not want to take money out from what you plan to leave your family, you are missing a very important fact. If you still owe debts when you pass, they do not just go away. They still have to be paid.
So consider this: If your debt currently amount to $20,000 and you borrow that from your life insurance policy, it is over. For debts that you do not pay off, interest will continue to accrue. Depending on when you pass, the amount of debt might double or triple. Would you rather use $20,000 to pay off debt now, or have your loved ones use the entire amount to pay them later? It is just better to get them out of the way now. You can always replace the money.
Get a Loan to Consolidate Debt
You may find after considering all of your other options that getting a debt consolidation loan is your best move. To decide this, considering the following:
Will the interest rates cost you more than any fees or interest rates associated with the other options? -Which of these have the best, most affordable repayment terms? (You do not want to choose something that will put you back in debt.)
Which one will affect you the most short term?
Which one will affect you the most long term?
If you decide that a consolidation loan is the best option, be sure that you shop around for the lowest interest rates, and that the repayment terms are something you can handle. You can fill in the form below and we will help you connect with a suitable lender:
So, Should You Consolidate Debt?
You really have to decide this yourself depending on your own financial situation, goals, and future. The answer for one person is not always the answer for another. However, I do believe that there is one way to consolidate debt that is simpler, quicker, and cheaper than all others: Talk to your creditors and make settlement agreements, then get a personal installment loan for the amount you need.
I personally see no reason to hire a company to consolidate debt for me when I can simply spend a few hours to get settlement offers and make payments. And, for me, an installment loan is the best choice because I have no home equity or whole life insurance to borrow against.
Your situation may be much different. If you simply cannot decide which way to go, reach out to a very wise person in your family or speak to a financial advisor. Sometimes simply talking it out will suddenly make you see the picture more clearly.
Where Can I Get a Loan to Consolidate Debt?
Debt financing is not hard to find. Loans to consolidate debt are available from any lender because they are basically just regular loans. Some of the places include:
Your Bank
If you have a relationship and good account status with your bank, they might approve a loan. However, their credit score requirements are usually quite high.
Your Local Credit Union
Credit unions have much lower requirements as their whole purpose is to help those in their community. This does not guarantee you a loan, but you can pretty much count on them going through everything they can to get you approved.
Online Lenders
Quite often, people who have a difficult time finding a loan to consolidate debt in person have much better luck online. That is not very shocking seeing how there are so many loan places available online. Do go through a trustworthy platform though so you can be connected with a reputable lender. And be sure to compare interest rates and terms prior to accepting.
Conclusion
Being in debt can definitely feel like a hopeless case, but fortunately, there is hope. Those who choose to consolidate their debt have an incredible chance at debt free living that they may not get any other way. By rolling your debt into one smaller monthly payment, you can take control of your finances and, perhaps, even start saving for the future.