If you can’t pay the bills, how do you combine all your debt into one monthly payment? Debt consolidation makes paying your bills easier – credit card debt, medical care costs, mortgage payments, and so on.
“Debt is a serious problem that can sneak up on you,” say the financial experts at Bills.com. “The first step toward controlling your debt is being aware of it. Once you’ve established that you need to consolidate and pay down your debt, the following ten tips for combining your debt may be helpful.”
If you’ve struggled with debt for a long time, read How to Get Out of Debt, Stay Out of Debt, and Live Prosperously: Based on the Proven Principles and Techniques of Debtors Anonymous. It’s one of the most popular money management books on Amazon.
And, here are a few tips on reducing your debt…
How to Combine Debt Into One Monthly Payment
These 11 tips for consolidating your debt and then making one monthly payment are from Bills.com…
1. Borrow on your 401(k). If you have a 401(k) or other employer-sponsored retirement account, borrow part of the money to pay down your debt. This should be used as a last resort, because if you can’t pay the money back within five years, you will be assessed the taxes and penalties associated with the early withdrawal of the funds.
2. Borrow against your life insurance policy. If you have life insurance, borrow money against your policy if you can’t pay the bills. Strictly speaking, you don’t ever have to pay the amount back if you can’t or don’t want to, but it will be deducted from the amount paid to your beneficiaries. For this reason, planning to pay the money back is advisable.
3. Borrow money from family or friends. Borrowing money to pay the bills will probably save you interest, but the list of associated problems can include the potential for damaged personal relationships, the expectation of a return of the favor years down the road even after what you borrowed has been repaid, and the possibility of legal action against you by someone who was previously a good friend or close family member. If you are borrowing money, read Tips for Lending Money to Friends or Family Members.
4. Consult a debt consolidation service. If you hire an organization to combine your debt into one monthly payment, make sure you’re working with a service that does not charge you high fees. Check with your local Better Business Bureau or other consumer protection agency. You’ll likely sacrifice two things to work with a debt consolidation service: your freedom to open and use additional credit lines and, in many cases, your credit rating. The service will usually ask you to make one monthly payment that it will then use to pay your creditors. There are two main types, debt settlement and credit counseling.
5. Know the pros and cons of combining your debt into a monthly payment. Debt settlement can hurt your credit score, but will lower your monthly payments and save you the most money without forcing you to file bankruptcy. Credit counseling lowers your interest rates and your monthly payments by less.
Another option is debt relief. Here’s how to find out if you qualify for debt relief.
6. Negotiate with your creditors or bill collectors. If you can’t pay the bills, you need to know what your creditors require! For instance, they may require that you incur no additional debt while working to pay off what you’ve already accrued. And, your creditors are under no obligation to agree to renegotiation; however, it is often to their advantage as well, since it means they will eventually collect.
7. Consider consolidating your debt onto one credit card. Calculate how much interest you could save by consolidating all your debt onto a new credit card that has low or no interest payments. Be very careful, though. If you continually open new cards and close older ones, you’ll hurt your credit rating. If you can’t pay the bills and want to combine all your debt onto a single card, consider keeping at least one of your older cards open with a small balance as well.
8. Take out a title loan. Do you own a car, boat, motorcycle, etc. with a free and clear title? If so, take out a title loan. Make sure you’re getting the rate you want. Also, be certain you understand the terms (will you get to keep your car, boat, or other collateral, or will you have to turn it over to the lender for the term of the loan?). Get a clear idea of the payment schedule, as failure to meet any of the terms may leave you without ownership of your property.
9. Take out a personal or signature loan. Weigh this option carefully if you can’t pay your bills, as the interest rate on this type of loan may not be significantly lower than what you’re already paying.
10. Refinance your home and take cash out at closing. Refinancing will help you pay down your high-interest debt without too much difficulty, and can be tax deductible. It saves you money and gets you a lower monthly payment. Just make sure that there is no possibility of missing a mortgage payment, because you don’t want to face a foreclosure because you transferred too much unsecured debt to secured debt.
11. Consider a home equity loan. If you own your home and have enough equity in it, take out a home equity loan or line of credit. Not only can you use the money for anything you would like, including debt consolidation, but the interest you pay on the loan will be tax-deductible so you will save money in more than one way.
While none of these options are delicious, remember that they’re better than struggling with unmanageable debt because you can’t pay your bills!
If you have any thoughts on these tips for combining debt into one monthly payment, please comment below…
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