Consolidate Debt: Most Americans have some sort of debt that is challenging their financial future. Fortunately, consolidation is a great option that can help you to get control over your crushing debt and make your future brighter. Before attempting to consolidate, it’s important that you choose a strategy that helps your credit as opposed to hurting it.
Use a Personal Loan
Using a personal loan is the best way to consolidate debt without hurting credit. Taking out a new loan can allow you to consolidate high-interest credit cards for a lower interest loan. According to the experts at SoFi, “Those with the best credit scores will typically qualify for the best rates on their new personal loans.”
Additionally, you can take the total amount that you owe and pay it off over a longer period of time, which can lower your monthly payment amount. This option is ideal for those who have good to very good credit. Those who have poor to fair credit may need to have collateral to be approved for a personal loan.
Tap Into Your Home Equity
If your home loan is paid off or you’ve significantly reduced the balance that you owe, you can utilize that equity to consolidate your existing debt. This is referred to as a home equity line of credit. Since you’ll be using your home’s equity as collateral, you can typically qualify for a low-interest rate.
Take a Loan Against Your 401(k)
Many 401(k) providers allow you to borrow against the savings that you currently have in your account. The amount that can be borrowed will highly depend on the amount in your account and the rules of your provider. Usually, you can borrow up to 50% of the total balance in your account. This is a loan that isn’t typically reported to your credit report. Therefore, when you consolidate, you can eliminate debt from your credit report without adding more to it.
Auto Equity Loan
Another great option for consolidating debt is an auto equity loan. If your vehicle is currently paid off or you have a large amount of equity in your vehicle, you can borrow against it. Your car can be used as collateral for assurance that you’ll repay the loan. However, since you’re using collateral, the interest rate for an auto equity loan tends to be lower than that of a personal loan.
Ask For a Family Loan
Consolidating your debt without hurting your credit can be done by simply getting a loan that doesn’t report to the credit agencies. Asking a friend or family member for funds can be a great way to keep your debt off of the books. Additionally, as you use the loan to pay off your existing debt, it will likely result in a boost to your credit score.
Consolidating debt can lower payments and interest rates. However, you’ll want to consolidate with one of the options above to ensure that you don’t damage your credit score in the process.
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