Here are a few other ways to pay off high-interest debt:
HELOC: A home equity line of credit (HELOC) is an alternative to a home equity loan that works like a credit card. Instead of receiving the loan in a lump sum, borrowers with a HELOC withdraw only as much money as they need at the time. In return, the homeowner only makes monthly payments and interest on the money withdrawn so far, not on the entire amount of the line of credit. Money can be withdrawn through debit cards or checks.
HELOCs typically have more repayment flexibility than home equity loans. Some HELOCs allow interest-only payments for a specified period, but when the repayment period ends, the borrower is expected to fully repay the balance due on the line of credit.
Like home equity loans, HELOCs may require fees or closing costs. And they generally carry variable interest rates, which make payment amounts less predictable.
Personal loans: If you have a good credit score, you may qualify for a personal loan that has a lower interest rate than your current debts. Rates can be as low as 5 or 6 percent for borrowers with good credit. Personal loans and other unsecured credit options may be a good option for anyone turned off by a home equity loan or HELOC because of the possibility of losing their home.
There are also secured personal loans, which will have lower interest rates than unsecured personal loans, which require collateral. Borrowers can use a car or other valuable items as collateral rather than their house.
Balance transfers: If you have a credit score greater than 700, you may be eligible to transfer your balance from a high-interest credit card to one with a an introductory 0% interest rate for a specified time. Some credit cards will allow you to transfer a balance with no fees and allow payments without interest for as many as 15 to 24 months, which can buy you time to pay down the balance without paying interest.
Debt avalanche strategy: If you decide not to take out a loan, rearranging your budget can help you speed up your debt repayment. The debt avalanche strategy involves putting as many resources as possible toward your highest-interest debt, and when that is paid off, apply those resources to the next-highest-interest debt, and so on.
A key to paying off any kind of debt is understanding why you have debt and exercising self-discipline while you pay off the existing debt. That may mean cutting back on spending, forgoing vacations, or taking on another job while you focus your resources on paying down debt. Getting out of debt can be worth the work as you rein in spending, stick to a budget, and reap the emotional and financial rewards of paying off what may have seemed like insurmountable debt.
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