To make your debt repayment plan more effective, you might want to think about debt consolidation. This means getting one big loan to pay off two or more smaller loans. The big benefit here is that you end up with just one payment each month, usually with a single interest rate. This simplicity is why many people find debt consolidation appealing.
**Check Your Credit**
Start by checking your credit profile. You can get a free credit report once a year from each of the three major bureaus, but if you want to see your exact credit score, there might be a fee. (Since July 21st, if you’re denied credit, you’ll get to see the score used in that decision for free). A good credit score can help you snag better loan terms.
**How Much Can You Borrow?**
Next, figure out how much you can borrow. Many people use a home equity loan or a second mortgage for debt consolidation. If you have home equity, you might qualify for a tax break on the interest, and you could get a better rate. But be careful—you’re securing what was previously unsecured debt with your house, so there’s some risk there.
Another option is a P2P loan. Demonstrating your commitment to financial stability might persuade some peers looking for passive income to help you with an unsecured P2P loan through platforms like LendingClub or Prosper.
**Which Loans Will You Consolidate?**
After knowing how much you can borrow, decide which loans to consolidate. Look at your loans’ balances, interest rates, and other factors. If you get approved for a loan with a lower interest rate, it’s smart to pay off the loans with the highest rates first.
If you go with a home equity loan through a lender, they’ll probably pay off the loans directly. But if you’re getting funds from other sources, you’ll need to handle the repayments yourself. The key here is not to rack up more debt but to make paying off your existing debt easier.