1. Balance Transfer Credit Card

Balance transfer credit cards usually come with an introductory 0% annual percentage rate (APR) on balance transfers for a set period, typically between nine and 21 months. The idea is to transfer your debts to the new card and pay off that debt during the introductory period to avoid paying interest.

However, there are some things to consider:

• You may not be able to transfer all your debt due to credit limits.
• Balance transfer fees typically range from 3% to 5% of the transferred amount.
• Purchases may still incur interest unless the card offers a 0% APR promotion on purchases.

2. Debt Consolidation Loan

Another option is to get a debt consolidation loan that offers a lower APR than you’re paying on your current debt. If your credit score is in good shape, this type of personal loan can help you reduce your total interest charges by hundreds or even thousands of dollars.

Consider the following before you apply:

• You’ll need good credit to make it worthwhile.
• Ensure you can afford the monthly payment.
• Watch out for origination fees, which can be as much as 10% of the loan amount.

3. Tapping Into Home Equity

If you have equity in your house, you may be able to use a home equity loan or home equity line of credit (HELOC) to get the cash you need to pay off your other debts. This method is popular because home equity loans and lines of credit offer low interest rates, as they use your home as collateral for the loan.

However, consider these caveats:

• Most lenders only allow you to borrow up to 85% of the value of your home.
• If you default on the loan, your lender could foreclose on your house.
• Home equity loans typically charge closing costs ranging from 2% to 5% of the loan amount.

4. Borrowing from Retirement Accounts

If you have a 401(k) plan with your current employer, you may be able to borrow the greater of $10,000 or 50% of your vested account balance, or $50,000, whichever is less. There’s no credit check involved, and any interest you pay on the loan goes back into your retirement account.

However, this option can be incredibly risky:

• Your employer plan may not offer loans.
• You’ll miss out on future gains due to the withdrawal.
• If you leave your job, your repayment will be accelerated.

5. Debt Management Plan

Debt management plans (DMPs) are programs offered by nonprofit credit counseling agencies. DMPs are designed to help consumers struggling with a large amount of unsecured debt, such as personal loans and credit cards.

Before signing up for a DMP, consider:

• You may have to close your credit cards.
• Your credit options will be limited during the DMP.
• There are fees involved, including a one-time setup fee and a monthly fee.

6. Debt Settlement

Debt settlement involves negotiating with your creditors to pay less than what you owe. You can try to negotiate a settlement on your own or hire a debt settlement company or law firm to do it for you.

However, there are significant downsides:

• It can damage your credit.
• It can be costly, with fees ranging from 15% to 25% of the settled amount.
• You may end up with a tax bill for the forgiven debt.

How Debt Consolidation Affects Your Credit

In the long run, sticking to your debt payment plan can help your credit scores. However, as you begin to consolidate debt, you might see your scores drop. Here are some ways debt consolidation can affect your credit:

• New credit applications result in a hard inquiry on your credit report.
• Adding new accounts reduces the average age of your credit.
• Your credit utilization rate may increase temporarily.
• Settled debts will be marked as “paid settled” and remain on your credit report for seven years.

Is Debt Consolidation the Right Choice for Me?

Whether debt consolidation is a good option for you depends on your financial circumstances and the type of debt you wish to consolidate. Carefully consider your situation to determine if this path makes sense for you.

When to Consider Debt Consolidation

• You have good credit.
• You have high-interest debt.
• You’re overwhelmed with payments.
• You have a repayment plan.

When to Think Twice About Debt Consolidation

• Your credit is poor.
• You don’t have a lot of debt.
• You’re not planning on changing your spending habits.

Alternatives to Debt Consolidation

Debt consolidation can be an effective tool when managing debt, but it’s not a magic bullet. There are other solutions you can try that don’t involve taking out new credit or potentially damaging your credit score.

Create a Budget

Sometimes all it takes to get out of debt is making a budget and following it. To create a budget, start by reviewing your income and expenses over the last few months. Categorize each expense to get a better idea of where your money is going.

Consider the Debt Avalanche Method

The debt avalanche method focuses on paying off the debt with the highest interest rates first as you work to pay off all your accounts.

Consider the Debt Snowball Method

The debt snowball method is similar to the debt avalanche approach, but instead of focusing on your debts with the highest interest rates, you order your debts by balance, starting with the lowest.