Do you think you can consolidate credit without a loan? Of course, you can! Some people might not like the idea of using another debt to pay off another. After all, it will be just like digging a new hole in order to cover another one. For some, that does not make any sense.
If you feel the same way, that is okay. According to a report from the Federal Reserve, banks are expecting a decline in loan applications as they tighten the standards and qualifications. Your decision to skip the use of a loan may have come at a good time.
While it may be the perfect time to consolidate credit without a loan, you still need to figure out your other options.
Fortunately for you, there are different ways to consolidate your debts. Before you make a choice, it is important for you to understand what your options are. That way, you can analyze it against your current financial situation. This will allow you to determine which of these is the perfect debt solution that will make debt freedom easier to achieve.
Two options to consolidate credit without borrowing money
There are two other options to consolidate credit without using a loan. Both of these are different from each other. It is important for you to understand them completely because that is the only way that you can determine which one is the best option for you.
The first option involves the help of a credit counselor. These debt experts are usually associated with non-profit organizations. They are trained professionals who can help and guide you as you try to get rid of your debts. When you get in touch with a credit counselor, you will be required to reveal details about your debts and personal finances. This is the only way that they can create a debt management program that is custom fit for your specific financial situation.
This program will revolve around a debt management plan (DMP). This is basically a repayment plan that is created based on the type of debts that you owe and your payment capabilities. You need to make sure that you can commit to this plan before the credit counselor sends it to your creditors and lenders for approval. While doing this, they will also try to negotiate a lower interest rate – but this is not a guarantee. Once they approve, you need to stick to this plan and follow it religiously. You will send a monthly payment to the credit counselor. The amount you will send is the total due for that month. The credit counselor will take charge of distributing that payment to your different credit accounts.
If you want debt management to be worth it, you need to make sure you will follow the DMP until the very end. Do not miss a debt payment because that will make the DMP null and void.
Balance transfer card
The other option to consolidate credit is to get a balance transfer card. This is simply a new credit card account that is offered with an option to transfer the balance of your other debts. You need to pay a balance transfer fee that is usually 3% of that amount that you will consolidate. This balance transfer card is offered with an introductory promo of 0% interest – or at least a very low one. This promo lasts for 6 months to more than a year. This means all the payments you make towards the transferred debt will only be credited to the principal debt. There will be no interest added – or if there is, it will be very low.
To make this successful, you have to follow certain rules when you consolidate debt using balance transfer cards. For instance, you have to try to pay as much as you can during the promo period. If possible, you should aim to pay it all off completely. When the promo expires, the balance transfer card will take on a high-interest rate that might make your debt grow again. Not only that, you should keep yourself from using this card for new purchases. The 0% interest is only for the transferred debt. New purchases will have a high-interest rate.
Tips when consolidating without a loan
Think about which of the two you will choose to consolidate credit. Both of these are effective in getting people out of debt but it gets easier if you choose the right one. To help you successfully achieve debt freedom, here are some tips that you might want to implement.
Stick to your payment plan
First of all, you have to commit to the repayment plan that you created. For debt management, this is the DMP. If you chose balance transfer, you need to create this plan on your own. Make sure you have a repayment plan that you can afford. But since this is under a time limit, try to commit the highest amount that you can pay. Once you have the plan, do not stray from it. Strive to meet that plan because that will also mark your progress as you pay off your debts.
Update your budget
After creating the repayment plan, you need to update your budget plan to include your new debt payments. This is the best way for you to ensure that your payments will always be funded. Not only that, looking at your budget plan will allow you to reconsider all the other expenses on it. If you used balance transfer, you can identify the expenses that you can cut back on so you can increase your monthly payments. In case something happens, you will know how to adjust your expenses so you will not compromise your debt payments. All of these are easier as long as you have a budget plan.
Find a way to increase your payments
Finally, you should also do your best to increase your income so you can pay more towards your debts. The higher you pay on a monthly basis, the faster you can get out of debt. Not only that, but you will also save more – especially on the interest payments. There are many options for you to increase your income. One is to ask for a raise. According to reports, employees can expect a higher pay raise this year – especially those who have performed well in the workplace.
If you are not one of those lucky enough to get a raise, you might want to find another source of income. You can get a freelancing job so you can control the projects that you will work on. You also have the option to lower your expenses so you can use the extra money to add to your debt payments. Once you have increased your debt payments, your road to debt freedom will be shorter and it will feel less of a burden to you.