8 Alternatives to a Debt Consolidation Loan PDF Print E-mail
Written by Eric K Frey   
Tuesday, 07 April 2009 19:05
Taking out a debt consolidation loan can be a responsible decision when you realize that your debts are getting out of hand. However, you will want to also consider other options before you do so. Here are 8 possibilities to consider before taking a consolidation loan.
by EricKFrey


Taking out a debt consolidation loan can be a responsible decision when you realize that your debts are getting out of hand. However, you will want to also consider other options before you do so. Here are 8 possibilities to consider before taking a consolidation loan.

1) Use what you have to pay your debt. A debt consolidation loan is still another loan that you have to pay. However, a little creative thinking about assets that you already own and can sell goes a long way in creating extra money to pay off the debt. If you have unwanted books, movies, TV's, tools, or even cars, all these can be sold through Craigslist, Ebay, or the local newspaper. By selling these things you can pay your own debt down faster. Also, if you are a homeowner with a spare bedroom that you can rent, that monthly income could get you out of debt faster then you though.

2) Pay as much as you can towards your credit cards. If you are able to make your minimum credit card payments you should consider how much additional money you can pay off each month. Reduce excess spending wherever possible and pay as much as you can on your credit cards. If you don't settle for making just the minimum payment, you can make a significant impact in your debt over the course of 12 to 24 months. If your debt situation makes it difficult to meet the minimum payment, a consolidation loan may be easier for you to manage.

3) If you are a homeowner, you may be able to save on your mortgage. Interest rates are historically low and by refinancing your current mortgage you may be able to save hundreds of dollars ever month. Additionally, you may be able to obtain additional money that can be used to repay other debts. However, be aware that there may be a prepayment penalty imposed by your current lender when doing this. If so, a second mortgage may still offer a reasonable interest rate while achieving a similar affect.

4) Take out a secured loan with another lender. If you have already missed or been late with any payments, and as a result your credit score is too low for your mortgagor, consider a secured loan with another lender. Secured loans in these circumstances are more expensive and the lenders are quick to repossess your home if you miss payments. Only take this route if you are certain that you can make the repayments.

5) Use other assets to get a secured loan. Although the interest rate on a loan secured by an asset other than real estate is typically higher, it may still be worth it. If you have a car, boat or other expensive asset, you can uses these as security for a loan. This is a possible option if you don't own any real estate or if your home is fully mortgaged already.

6) An unsecured loan. If you do not have property or other assets an unsecured loan is often a possibility. An unsecured loan is usually over a shorter term, normally up to a maximum of 7 years but occasionally longer. As a result the monthly payments will be higher but the debt will reduce quickly. Because there is no security expect to pay a higher interest rate, particularly if you have a poor credit history.

7) Don't forget the credit card option. If your debts are relatively low and you still have a reasonable credit history, applying for another card with a 0% or low interest rate could be an alternative to a debt consolidation loan. Go for a 0% balance transfer if you can realistically repay all or most of the debts in the 0% balance transfer period.

8) Do your own research of the options. There are many possible courses of action that you could take to get out of debt. Some are better than others, some may be obvious and others can be confusing. Thoroughly research the choices for your own situation before making a final decision. Talking to different lenders and banks may be able to help give you more information so that you can compare your choices. Asking a bank for advice won't commit you to anything, but it might help you get out of debt.

Debt consolidation can be a great choice for many people when burdened by debt. However, it is not the only solution and getting out of debt will take a little determination, effort and some time no matter what course of action is used. The benefits are worth it though and your life will be much less stressful and enjoyable when you are not overwhelmed by debt.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Eric Frey is a MBA student who is incredibly interested in the topics of debt management and debt reduction. If you are in debt and want to learn how to Reduce Your Debt, the secrets that Eric discovered may interest you. He claims that a military strategy is the solution to being debt free. Visit his site at Your debt reduction Guide and you can learn more.