6 Ways to Restructure Your Debt
1. Credit Card Debt Consolidation Through Balance Transfer
Credit card companies want to carry your debt and collect interest. Standard interest rates on credit cards can be as high as 29% per annum. But another company may be willing to carry your debt for a far lower interest rate. Some cards offer zero percent interest on balance transfers for as long as a year! This could save you hundreds of dollars in interest payment, getting your debt paid off faster. Call your credit card companies and see who will give you the best offer. If you do not pay off the debt before the promotional rate expires, the balance will carry the high standard interest rate.
2. Debt Consolidation Loan
Banks and debt consolidation companies offer many kinds of loans. A debt consolidation loan may be a good option if you have collateral. Collateral could be equity in your house, a car, or bank deposits. These loans will offer a fixed monthly payment over a period of years with a steady interest rate. The interest rate will be far lower than the standard credit card rates mentioned above. However, if you default on the loan and fail to make payments, the bank could take your collateral.
3. Home Equity Loan
Using your home as a “bank” has been a popular method of debt restructuring for many years. If you’ve paid down your mortgage substantially and have equity in your home, you can cash out the equity and use that money to pay off credit card debt. Your interest rate will be closer to a standard mortgage rate, so you will save money in the long run. Your payments will be equal monthly installments, and payment can be stretched out for as long as 30 years.
4. Consolidate Through a Credit Counselor
Some credit counseling services are backed by financial institutions. They offer debt consolidation loans that require you to follow a specific plan of spending and repayment. The advantage is that your interest rate will be low and your payments will be fixed. But you may lack flexibility in your other spending patterns.
5. Peer-to-Peer Loan Website
Peer-to-Peer lending allows borrowers to take out loans from non-institutional investors, foregoing some of the onerous application process. Lenders put their money to work earning interest from borrowers. Lending Club is a leading website in this industry.
6. Last Resort: Chapter 13 Bankruptcy
Filing bankruptcy is always a last resort. It will severely damage your credit for several years and keep you under the thumb of a bankruptcy trustee and the bankruptcy courts. But a Chapter 13 bankruptcy will give you a 5-year plan of debt repayment, while eliminating certain unsecured debts. Speak to a qualified bankruptcy attorney before pursing this option. Income and debt restrictions apply.