Help, I'm Desperate to Find a Debt Consolidation Strategy
Mortgage Credit Problems Columnist
Some credit card companies are raising the maximum default interest rate to 30% for customers who've been late with payments, according to MarketWatch. That means that people who are already struggling to make the minimum payments on their credit cards may be faced with even higher mountains of debt. If you're panicking about paying off your debts here are some strategies to consider.
Debt Consolidation Loans May Help
You're probably already considered a debt consolidation loan to combine debts and reduce interest. A debt consolidation service can give you one affordable monthly payment. But debt consolidation services won't work for everyone, so you may need to consider some other alternatives.
Tapping Home Equity
You may want to consider using a home equity loan to help fix your poor credit and pay off debt. Obtaining a home equity loan or home equity line of credit (HELOC) could allow you to consolidate the balances on high rate cards and interest may be tax deductable (check with a tax professional). Keep in mind that a home equity loan features a fixed rate and payment but a HELOC will likely carry an adjustable rate. Look for a HELOC that allows you to fix your rate at one or more times during the life of the loan.
Borrow Against Life Insurance
Desperate times sometimes call for desperate measures. If you're really in a bind and can't qualify for a debt consolidation or other loan, you could consider borrowing against the cash value of your life insurance policy. Borrowing from life insurance is a drastic step and should be evaluated carefully. Make sure you understand exactly how this will impact your finances down the line.
Using Retirement Plans
Most financial experts advise against borrowing from retirement plans. But it's something to consider if you've run out of options and are facing foreclosure or bankruptcy. Two huge drawbacks of using retirement funds are that you won't be earning interest on the money and you'll have to pay it back if you leave your job.
If you're searching for a debt consolidation strategy don't panic. Keep a level head and examine as many options as possible before deciding which road to take.
Sources
MarketWatch
"Cracking the Whip," by Chris Pummer, www.marketwatch.com.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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