How to consolidate your bills and get out of debt more quickly

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Everything from tighter lending standards to plunging home values has made it harder to consolidate high-cost debt into a new low-cost loan.

But you can dig yourself out of debt more quickly by covering your most expensive bills with a single loan that’s cheaper and easier to pay back.

Use our debt consolidation calculator to see exactly how much you can save and how soon you can be debt-free.

That’s why you should at least consider whether one of these five options for a debt consolidation loan might work for you.

Option 1. Tap a home equity line of credit.

Home equity lines of credit (HELOCs) have been one of the best ways to pay down high-cost debt, and with interest rates on these loans still near historic lows, that hasn’t changed.

With a HELOC, you borrow against the equity in your home and get cash.

Depending on your credit and income, you may be able to borrow up to 85% of the value of the home, including the first mortgage you have in place.

So, if you have a home valued at $200,000 and you have a $155,000 mortgage on it, the max you could borrow with a home equity loan would be about $15,000.

But that’s if you’re lucky. Due to the recent housing crash, you may simply not have enough equity in your home.

The average homeowner now has 38% equity in their home, compared to 61% a decade ago. And a fourth of homeowners actually have negative equity in their homes.

When you apply for a HELOC, you may have some up-front costs, including a few hundred bucks for an appraisal.

So try to figure out if your home’s even in the running for a home equity loan before incurring any application costs.

Option 2. Do a cash-out refinancing

This involves taking out a new mortgage for an amount larger than your current mortgage. Basically, you pay off your old mortgage and use the extra money to pay off your bills.

With mortgage rates also near record lows, this can be a good source of low-cost cash.

As with a HELOC, you often have to have 20% or more equity in your home in order to take cash out. Some banks may let you go down to 10%.

Let’s say you had a bank that was willing to do 90% loan-to-value cash-out refinancing.

If your home appraised for $200,000 and you had a $150,000 mortgage, you’d be able to borrow $30,000 out of the deal.

The bank would write you a new mortgage for $180,000 at which point you’d use $150,000 to pay off the old loan. Then you’d get a check for the remaining amount.

Again, the problem is that you need to have enough equity in your home (usually at least 20% after the cash out) and you need to have spectacular credit.

Many homeowners simply don’t meet the requirements.

Option 3. Use a balance transfer credit card or your cheapest existing account

Back in the good old days, credit card companies were so eager for your business they’d constantly offer no-interest balance transfer introductory offers.

You could open new accounts, move your debt to a new card every year and pay 0% interest. If you paid attention to the fine print, you could play the game and win.

Nowadays you’ve got to look a little harder to find the top deals on balance transfer credit cards.

You’re going to have to have great credit. That’s a problem because many people who need a good balance transfer card can’t qualify for one.

The next best option is to find an existing account of yours that has the lowest rate on balance transfers.

Deals aren’t always publicized, so call your other credit card companies and ask if they can offer a better rate to transfer your balance. Sometimes it's as simple as asking.

Check out our balance transfer calculator to see how much you’ll save.

Option 4. Take out an unsecured personal loans

If you’ve got spectacular credit, you might be able to get an unsecured personal loan.

Start your search at local credit unions. They’re far more likely than big banks to offer such loans.

Because they’re unsecured, they usually have higher interest rates than a HELOC. But it may be your best option.

Many credit unions will lend anywhere from between $500 and $50,000. Some offer personal loans with set terms and fixed interest rates.

Others offer personal lines of credit. They’re similar to home equity lines of credit and have variable interest rates. You open the line of credit then borrow as you need it.

You’ll need great credit and a good income to land a loan like this. The good thing is that the application process and decision is usually quick. In many cases, you could have access to the money the next day.

Option 5. Turn to a third-party debt consolidation

One final option is to consolidate your debt through a third party. You should use this as your absolute last resort because there are so many crooks and scams in the debt reduction business.

Finding a good deal here is like finding a needle in a haystack.

Many companies charge high up-front fees and convert your debt into a long-term loan.

The problem is that it’s often a worse deal for you. Companies often say they can lower your monthly payments by up to 50% but do so by extending the terms.

Let’s say you have a $6,000 credit card balance that calls for a $120 monthly minimum payment. They may work a deal to lower your monthly payment to $60 but they’re doing so by spreading your new loan over 10 years.

And while you may have a lower interest rate than you did on the card, the cumulative payments could add up to more.

Unless you find one of those needle-in-a-haystack companies and can totally understand the fine print, avoid it.

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