Free Debt Consolidation- 5 Ways to Consolidate Debt for Free
Debt consolidation is a popular topic. There were over 670,000 Google searches for "debt consolidation" last month. With so many Americans struggling with debt, it is not a big surprise that many people are looking for a way to get control of their debt. If you are looking for a way out of debt, you may be drawn to first look at free debt consolidation options, ones that don't cost you any money, before you look for professional help you have to pay for.
Free Debt Consolidation Options
Before you choose the best way to handle your debt, carefully consider the different options available. Here are a few free debt consolidation options to review:
- Debt Coach- Bills.com has introduced Debt Coach, a new, free tool that helps you find the best way to become debt free. The solution that Debt Coach recommends for you is based on your goals, priorities and your individual finances. While preserving your confidentiality and privacy, Debt Coach can execute a 'soft pull' of your Experian credit report, at no cost and without it affecting your credit score. This way, the most current and accurate snapshot of your debts is taken into account and factored into Debt Coach's recommendation.
- 401(k)Loan- If you have money in a 401(k) account, borrowing from your own account is an almost free debt consolidation option. You have to pay interest on the amount you borrow, but you pay the interest back into your own 401(k) account. The interest rate on 401(k) loans are usually quite reasonable. If you are carrying balances on high interest credit cards, borrowing from your account to pay off your credit card debt is something you should seriously consider. You are usually given a few years to repay the loan. Repayment terms and the rules for borrowing vary from plan to plan, so speak to your 401(k) plan administrator. The biggest risk in borrowing from your 401(k) plan is that if you don't pay back the loan as agreed, you will have to pay a 10% penalty and income taxes on the amount you borrowed. Rules are completely different for IRA retirement accounts, so check with a tax planner before borrowing from an IRA.
- 0% balance transfer- A few years ago, mailboxes were stuffed with offers for 0% balance transfer offers. Since the credit crunch, while these offers still exist, they are fewer and farther between. These days, a 0% balance transfer offer is only available if you have excellent credit. Like so many things in life, the people who need it can't get it and the people who can get it don't need it. Also, a 0% balance transfer is not really a free debt consolidation option, even if you pay off the entire balance before the 0% interest rate expires. The reason they are not free is that the banks charge a fee, either a flat fee or a percentage of the balance you transfer.
- Insurance Policy Loan- If you have a whole life insurance policy that has built up equity, consider borrowing against it or cashing in a portion of it. This method of borrowing from yourself is a free debt consolidation option.
- Do-it-yourself Strategies- If you use your resources more efficiently, you can speed up the time it takes you to become debt free and save yourself money. While not technically a free debt consolidation option, because your debt is not consolidated, it doesn't cost you anything to spend your money more carefully and to make a plan to pay off your debt most effectively and at the lowest cost.
- Budgeting- Unless you are different from everyone else on the planet, there are ways you waste money each month. Look closely at your income and expenses. Trim expenses you don't need and look for ways to pay less for fixed expenses you need. Use the Bills.com budget guide, a free resource, to start spending more effectively.
- Effective Pay-down StrategiesDo you pay only the minimum required payment on your credit cards? That is a recipe for disaster. Consider the snowball or avalanche debt pay-down strategies. Snowball targets your credit card with the lowest balance and avalanche targets your card with the highest interest. The key to both approaches is to take the amount you were using to pay off one card and add that to your payment on another card, once the first card is paid off. Either strategy, if used properly, will speed up the time to debt freedom and save you money.
Summary
Free debt consolidation options exist. Start your path to debt freedom by looking at solutions that don't cost you anything, before you examine debt relief programs that have a fee. The worst thing you can do is to pay only minimum payments on your debt while continuing to add to your overall debt. Clearly, that pattern is a trap; you will never get out of debt. Take the time to make a budget. Figure out what you can trim from your expenses. Use your own resources, such as a 401(k) account or life insurance policy, if you can. Formulate a strategy to pay down your debts more efficiently.
Lastly, take a look at the Debt Coach tool. It doesn't cost anything and in less than 15 minutes it will help you find a way to become debt free that is consistent with your goals and priorities.
Dealing with debt
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q3 2023 was $17.291 trillion. Housing debt totaled $12.489 trillion and non-housing debt was $4.802 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Virginia, 16% have student loan debt. Of those holding student loan debt, 7% are in default. Auto/retail loan delinquency rate is 4%.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circ*mstances that lead to late payments or debt in collections.The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.
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Free Debt Consolidation Options
Debt Coach: Bills.com has introduced Debt Coach, a free tool that helps individuals find the best way to become debt-free. It provides personalized recommendations based on individual goals, priorities, and financial situations. Debt Coach can execute a 'soft pull' of the Experian credit report at no cost, providing an accurate snapshot of debts to formulate recommendations .
401(k) Loan: Borrowing from a 401(k) account is an almost free debt consolidation option. While interest is paid on the borrowed amount, it is paid back into the individual's 401(k) account. However, there are risks involved, such as potential penalties and taxes if the loan isn't repaid as agreed.
0% Balance Transfer: This option, available to those with excellent credit, allows for the transfer of balances from high-interest credit cards to a 0% interest rate. However, it's important to note that banks charge a fee for this service, making it not entirely free.
Insurance Policy Loan: Individuals with a whole life insurance policy that has built up equity can consider borrowing against it as a free debt consolidation option.
Do-it-yourself Strategies: While not technically a free debt consolidation option, using resources more efficiently and making a plan to pay off debt effectively can save money and expedite the path to becoming debt-free.
Budgeting: Analyzing income and expenses, trimming unnecessary expenses, and finding ways to pay less for fixed expenses can contribute to effective debt management.
Effective Pay-down Strategies: Implementing strategies such as the snowball or avalanche debt pay-down methods can accelerate the journey to debt freedom and save money.
Dealing with Debt
Types of Debt: Common types of debt include mortgages, credit cards, student loans, personal loans, and auto loans. As of Q3 2023, total household debt in the US was $17.291 trillion, with housing debt totaling $12.489 trillion and non-housing debt at $4.802 trillion.
Debt in Collections: Approximately 26% of people in the US have some form of debt in collections, with the median debt in collections amounting to $1,739. Student loans and auto loans are prevalent types of debt, with about 8% of individuals with student debt having loans in collections.
Credit Score Maintenance: Timely payments are crucial for maintaining an excellent credit score. However, various circ*mstances can lead to late payments or debt in collections.
Debt Relief Solutions: There are numerous ways to deal with debt, including debt consolidation and relief programs.
By considering these free debt consolidation options and understanding the dynamics of debt, individuals can take proactive steps towards managing and reducing their debt burden effectively.
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