Debt consolidation loans may be the right choice for some borrowers, but there can be downsides. For example, APRs can be high for borrowers with poor credit, and loans are often subject to fees. If these are dealbreakers for you, here are alternative strategies:
Balance transfer credit cards
If you have high-interest debt, you may be able to cut back on how much interest you pay by getting a 0% intro balance transfer credit card.
These types of credit cards come with no interest for a set period of time. Once the introductory period ends, you’ll have to pay interest on whatever balance is left on the card.
Home equity loans/home equity lines of credit
Home equity loans and home equity lines of credit (HELOCs) allow borrowers to take advantage of the equity they’ve built into their homes.
Home equity loans work as a second mortgage and often come with fixed interest rates. You’ll be provided a lump sum and may be able to borrow up to 80% of your home’s value.
HELOCs, on the other hand, function as a credit line that is used to borrow against your home’s equity. These types of loans are similar to credit cards in that you only pay interest on the amount you borrow. HELOCs typically come with variable interest rates.
Credit counseling
A debt consolidation loan won’t ultimately solve your financial issues if you’re struggling with sticking to a budget. If you find yourself in this scenario, you can work one-on-one with a credit counselor.
A credit counselor can help you create a realistic debt management plan and teach you how to manage your finances. They can also help you navigate whether bankruptcy is a good option for you.
Debt repayment strategies
In some cases, it may be beneficial to aggressively pay off your current debt instead of taking on a new loan. The debt avalanche and debt snowball methods are among the most popular forms of debt repayment strategies.
Debt avalanche method
This debt repayment strategy focuses on paying off debts with the highest interest rates first. As a result, the debt avalanche method can help borrowers save money on interest in the long run.
Debt snowball method
When it comes to paying off debt, small wins can feel like big accomplishments. This is why some borrowers prefer the debt snowball method. This strategy focuses on paying off debts with the smallest balances first.