The basic concept behind debt consolidation is to take a bunch of smaller loans that have a high interest rate and replace them with a few loans at a much lower interest rate. This isn’t rocket science. Many people may be able to do this without doing to a debt consolidation service. It is just a matter of finding a place that will offer you a loan a better terms than what you have currently.
One way to potentially do this is with a home equity loan. Home equity loans are generally at a very low rate. The banks offer a low rate because the risk is very low–they have the deed to your house if you fail to pay. Home equity loans can be very useful as a consolidation loan because you can take your debt from credit cards and roll it into a consolidated low interest loan just like your mortgage. Of course the danger is that you won’t pay it off and the bank will take your house.
Another way to get a debt consolidation loan is to borrow from your retirement account. Many retirement accounts will allow you to borrow money you’ve saved, and then pay it back to yourself without any type of tax penalty. Usually you have to even pay yourself interest. The disadvantage of this type of setup is once again if you don’t pay it back. The government will they make you pay a tax penalty. Also when you borrow the money, it won’t be growing in your retirement account.
Low interest rate credit cards can be another quick way to give yourself a consolidation loan. Many places offer very low rates as an incentive to new customers. Just make sure you have a plan to pay off the debt or move it elsewhere before the rates go back up.
Not everyone can do a consolidation loan for themselves. Generally if you are in very very serious trouble, you won’t be able to use any of these methods to get out, but if you are able to take action before things get too serious, some of these methods make work to let you consolidate your debt into one or two larger lower interest loans.
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