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During this time of economic trouble, many people are looking to Debt Consolidation to help relieve their money problems.  The issue comes when they start looking into the options available to them – there seems to be so many!  Which one is best for them and why?

Here are a few debt consolidation options to consider:

Transfer Balances

You can transfer credit card debt from a high-interest card to a lower-interest card with the scribble of a signature or swipe of a card.  This option can save you hundreds of dollars over the year as long as you keep up with the payments.

If your credit rating is good, you can easily find a low-interest cards on one of the many credit card comparison sites, including and

Before you make the transfer, make sure to read all of the documentation provided by your credit card company, including terms, limits, and expiration of any deal you take advantage of.  Remember – banks are out to get your money and they usually do it through the use of the "small print" that's hard to read and hard to understand.  If you do have any questions, call the credit card company and ask.
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Bank Loan

Borrowing money from a bank or credit union is another way to consolidate your debt.  This is a great option for people who have excellent credit or collateral.  If you do not have either, you may have a hard time qualifying for this option.

There are a few ways available these days to consolidate debt with a bank loan.  These include:
  • Debt Consolidation Loans – These loans are designed specifically to pay off your existing debt.  Depending on your current financial situation, you may qualify for an unsecured loan but if your credit has been trashed because of credit card issues, you may need to put something up as collateral.
  • Home Equity Loans – If you are in good standing on your mortgage or your house is paid off, many banks will suggest that you borrow against the equity you have in your home.  Equity is the difference between what you owe on the house and how much it's worth.  This is a super easy way to get a debt consolidation loan BUT remember that you are putting your house up as collateral.  If you fall behind on your payments, you could lose your home.
  • Mortgage Refinancing – Refinancing your home may help you lower your current interest rate, save you money, and allow you to borrow more money.  This method means that you take out a new mortgage for the amount of what you owe on your house AND enough to cover your debts.  Of course, you home's worth must be enough to cover the new loan amount.  Just remember - your house is your collateral and you can easily lose it if you miss a payment or two.

As with credit cards, it's important to shop around for the best loan terms.  Some banks may be more lenient than others when it comes to certain indiscretions in your financial past.  Check with your bank, local credit unions, and saving and loans to see who has the best deal.
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Borrow Against an Existing Account

Another way to pay consolidate your debt is to borrow against your whole life insurance policy or retirement account. 

Borrowing against your whole life insurance has a few advantages and one big disadvantage.  One advantage is that there is no application to complete and no credit check, so if your credit sucks, this might be the way to go.  Another advantage is that you usually don't have to repay the borrowed amount.  That's where the disadvantage comes in – if something does happen to you before you repay the amount, your beneficiaries will receive less of a payout.  Before you decide on this option, make sure to consult with your insurance advisor and review the policy to ensure this option is possible and what fees might apply.

Another debt consolidation option is to borrow against your existing 401k / retirement account.  Most plans are set up to allow employees to borrow against their retirement funds up to a certain amount.  Though there is no credit check or application, there is a time limit to repaying the loan (usually 5 years).  If you do not repay the amount within those five years, you will be required to pay a 10% early-withdrawal penalty to the IRS.  Also, keep in mind that there are usually fees and interest rates attached to these sorts of loans.
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Decided between these Debt Consolidation Options can be difficult.  If you need help deciding which one is right for you, consult with a CPA, financial advisor, or one of the many reputable nonprofit credit counseling organizations in your area.  Getting advice from a qualified financial professional can help you avoid a very expensive financial mistake that could follow you for years.