# Managing Your Debt Through Consolidation: Where to Start

Debts can pile up in the blink of an eye. It can be due to credit card debts, payday loans, medical bills, college tuition or a combination. Whichever the cause, if left unattended to, the problem can escalate to agonizing levels.

Skipping payments can inflate your initial debt. To make matters worse, the late fee payments and interest rates will pile on the principal amount, thus making it more difficult to bear the increasing debt burden.

At this point, you may feel like there’s no solution. However, you can use various methods to salvage the situation. One of the common methods is through debt consolidation.

### Debt Consolidation

To consolidate means to combine. Therefore, debt consolidation means combining debts (multiple) into one debt. This leaves you with a single debt to take care of. It’s simpler to focus on one debt than to attend to multiple debts.

In fact, having numerous debts leads to forgetfulness which can turn out to be expensive in the long run. By consolidating your debts, you’ll only have one monthly payment to make. In addition, you’ll benefit from low interest rates while avoiding late payment penalties and other charges since there’s a single payment to make.

Before diving into the various debt consolidation methods available, go through these steps:

• How much do you owe? Scrutinize your report and sum up all your debt. This will give you a clear picture of the amount you owe.
• What are your assets? Assets include your vehicle(s), home and other properties or valuables. What can you use to get money to pay off your debt?
• Check your credit score. Where do you fall? Will a drop impact your life moving forward?

The next step is to find a suitable debt consolidation program which will help you clear your outstanding debt. Take a look at these options.

### 1. Family and Friends

This is the easiest way to get a huge sum of money to pay off the multiple debts. Afterward, you can start paying the individual over an agreed period. While this may be an easy way out, the relationship between you and your friend or relative is key.

How close are you to them? Are they flexible with their loan terms such as interest rates and repayment period?

If you choose this path, take time to come up with a solid plan which details how you intend to repay the loan. Furthermore, explain your budget, the interest rates, monthly installments and the debts you have. Go ahead and show the areas you’ve cut back on expenses to show your commitment.

### 2. Using a Personal Loan

You can get a personal loan from credit unions, banks and fintechs. In this scenario, you can take out a loan equivalent to the total debt and then pay the institution fixed installments over a fixed period. The duration can range from 12 to 60 months.

You can take out a personal loan to clear the small debts such as cell phone bills, utilities and credit card debts. You’ll then have to make a single payment to the institution. This is a smart move because personal loans come with fixed interest rates which will depend on the loan size and credit score.

The greatest benefit of a personal loan is the lack of collateral to back the loan. This means you won’t lose any asset to the creditor if you skip any payments. However, prepare yourself for a legal battle because the creditor will sue you. You’ll also have to deal with liens on your pay.

### 3. Using a 401(k) Loan

Do you have an active 401(k) plan? If yes, you can take out a certain portion to clear your debts. However, retirement accounts enjoy protection from the government and from your workplace. Therefore, there’s a limit to the amount you can take out.

For example, you can only take out 50 percent of your total investments. What’s more, you’ll have to pay up in 5 years through deductions on your payroll. The loan amount is subject to interest rates, but the best part is the zero credit checks, thus making it easy and fast to qualify for a 401(k) loan.