As an adult looking for financial stability and freedom, one of the most important things you could do at least once every year is to check your credit rating. Regulation dictates that you get one free report from the different credit rating bureaus each year. This report will give you a comprehensive documentation of what you owe and your overall credit worthiness (what the lending world thinks of your capability to pay them back should they give you a loan).
Sometimes, however, this report will show you that you have too much debt and that you are struggling to keep track of it all. When there are just way too many people and interest rates to pay down every month, this is when things start falling through the cracks and before you know it you have a “past due” notice or a default which negatively affects your overall credit rating.
One of the best ways to keep that from happening is to get a debt consolidation loan.
What is a Debt Consolidation Loan?
A debt consolidation loan is basically a way to refinance all your debt and bring them under one roof, so to speak. This means that you will only be paying one debtor per month who represents all of your debtors. These kinds of loans have several advantages:
- They often come with lower interest rates
- You get to make only one general payment per month for all your debt
- They save you money
The problem is that they are not easily accessible, at least not for people with bad credit. So what should you do if you cannot access a debt consolidation loan? Do you give up and find a bankruptcy attorney to start filling for a Chapter 7? Of course not. You look for other viable alternatives.
7 Alternatives to Debt Consolidation Loans
The following are seven viable alternatives for debt consolidation loans for those with bad credit or who for one reason or another did not qualify for these loans.
1. Automate Your Debt Repayments
One of the easiest ways to make sure that you do not let any of your repayments slip through the cracks is to automate as many, if not all of them. You can simply set up standing orders to your bank accounts to make sure that everything is paid off by a certain date each and every month for as long as it takes.
2. Be More Aggressive About Paying Down the Loans Yourself
The only way to get rid of debt and raise your credit rating is to pay it down and off. You can become more aggressive about repaying your debts every month. Make a list of all the people you own and see which one have no early repayment penalties and pay them all off if possible. This will reduce the number of people you have to deal with each month and in the process raise your credit rating.
3. Get On a Debt Management Plan
A debt management plan is very much like a debt consolidation plan only it has to do with your credit cards. Once you get into a debt management plan with a specific credit card company, all of your other credit cards will be cancelled and you will then start making one large payment per month to that company. They will negotiate down your interest rate and disburse the monthly payments you make among all your other credit cards. This is perfect for people with bad credit and poor memories.
4. Get a Home Equity Loan or HELOC
If you have already paid down your house some and built up some equity, you can use that as security to get a home equity loan. A HELOC is when get a home equity line of credit. This means that the equity loan you get will be converted into cash and you can use that to pay down your other debts so you only have this HELOC to deal with every month. The best thing is that these loans often come at very low interest rates. The bad news is that you will need good credit. At least a 660 FICO score.
5. Get Cash-Out Refinance
Although this is quite similar to getting a home equity loan, in the case of a cash-out refinance, the private lender you deal with will buy out your existing mortgage and give you 80% of your home value in cash. This means that you will now be paying your monthly installments to this new lender and can use the 80% home value cash you got to pay down your other debts. This kind of loan is often much cheaper than home equity loans and does not have a very high credit rating requirement.
6. Carry Out a Balance Transfer to a Card with 0% Interest
The good news is that there are a lot of credit cards that offer a 0% interest rate between the first 12-24 months. If you are serious about paying down your debts, you can transfer them to this card and ensure that you have paid them all off within 2 years. This way you get to save the money you would have paid in interest from this card and get to have all of your debt under one roof. You need at least an average FICO score to qualify for a balance transfer to a credit card.
7. Enter into a Credit-Counseling Program
This is where you talk to a professional about your money issues. Depending on how severe your case is, they can either give you some practical advice on how to pay down your debt or come up with a debt management plan where they contact all your creditors and bring them to an agreement where you pay one monthly installment that is shared among them until you are done.
As we mentioned earlier, filing for bankruptcy isn’t always the best choice. If you cannot get a debt consolidation loan, then consider any of these seven practical alternatives.