Debt consolidation Archives

December 23, 2020May 20, 2022

5 Smart Ways to Consolidate Growing Debt

Debt can wreak havoc on your ability to achieve your financial goals. That’s why it’s critical to pay off debt quickly so you can get your finances—and life—back on track. While it may feel impossible to get out of debt, consolidation can help you chip away at the burden. Here are five ways to do it.

1. Tap Into Your Largest Asset

As a homeowner, you can access your equity through a HELOC, home equity loan, cash-out refinance, or home equity investment and pay off your debts in full. A home equity investment, like Hometap provides, allows you to get cash to pay for what’s most important to you without the hassle of monthly payments or interest.

The option that will make the most sense for you depends on your debt and financial goals. Compare your options using our guide to find the best one for you.

Take our 5-minute fit quiz to get started.

2. Use a Balance Transfer Credit Card

Depending on the amount of debt you have, you may be able to transfer it all to one credit card. If you transfer it to a credit card with a 0% interest promotional period, you can avoid paying interest. You’d then have only one monthly payment while eliminating the high interest your other cards carried.

However, you’ll still need to qualify for these cards, which may require a good credit score. Plus, if you can’t pay off the debt by the end of the promotional period, you may end up paying more through higher interest. You’ll need to stick to a disciplined payment schedule if you want to avoid additional debt.

3. Take Out a Personal Loan

If you can secure a personal loan with a lower interest rate than the rate on your current debts, it may make sense to take out a loan.

Personal loans don’t require collateral. That means they don’t require you to back the loan with assets like your house or car in case of nonpayment. You’ll still need a good credit score, however, especially if you’re hoping for a low-interest rate.

4. Consider Debt Settlement

Debt settlement isn’t so much debt consolidation as it is payment consolidation. With debt settlement, a firm negotiates with your creditor(s) to lower the total amount of debt you owe. You then make one monthly payment to a settlement firm.

While that may sound ideal, you’ll want to look into the details. The process can take months, you’ll be racking up interest, in the meantime, and the firm will charge a fee. You may even have to pay taxes on the forgiven debt, and your credit score can be affected for seven years.

5. Borrow From Retirement

Consider this option with caution: If you have a retirement plan you may be able to take out a 401(k) loan. You’ll need to determine if your specific plan allows this and its terms. If you pay the loan back on time (usually five years), the cost to you is relatively low. The interest you pay on the loan actually goes back into your own account. You can also repay the loan without prepayment penalties and many plans may allow you to take payments out of your paycheck.

Over 50 and have $0 for retirement? Here’s your roadmap to get on track >>

But if you don’t pay your loan back on time, you’ll likely have some serious setbacks. At this point, it’s considered an early withdrawal, which means you’ll face a penalty and income tax. You’ll also want to consider your job status. If you leave your job, you’ll have to pay the loan back within 60 days.

Take our 5-minute quiz to see if a home equity investment is a good fit for your debt consolidation goals.

DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

May 31, 2019June 22, 2022

6 Tips to Help You Get Out of Business Debt—Fast

Running a small business is expensive. Really expensive. You need to bring in enough cash to not just cover your staff’s salary but also to pay for everything from cleaning the office to purchasing inventory.

To accomplish all of this, some business owners find themselves taking out loans or tapping into their business line of credit. There’s nothing wrong with taking on some debt to grow your business, but the sooner you pay it off, the sooner your company’s financial standing and revenue improves.

Here are six tips to help you get out of business debt—fast!

1. Make a New Business Budget

Start by taking a cold hard look at your business’s current financial situation. For many small business owners, what feels like insurmountable debt is actually disorganized income. There may be opportunities with your current cash flow to move money around and pay off your debt faster without spending more money each month.

2. Cut Back on Spending

As you dig into your new budget, you may find opportunities to cut back on unnecessary expenses. To be clear, we don’t suggest you stop investing in your business. Instead, it’s a matter of reducing your overhead so you can focus more on paying off debt. For example, do you buy your team lattes each morning? Instead, invest in a fancy coffee maker for the office. You’re still treating your staff while also cutting back on your expenses.

3. Start by Paying Off Your High-Interest Debt

After analyzing your budget and cutting back on unnecessary expenses, you’ve hopefully found some extra cash that can help pay back your current debts. Gather all of your statements and take a close look at each loan’s interest rate and minimum monthly payments. Many advisors recommend paying off your high-interest debt first. This is called the “avalanche method,” and it allows you to pay off your debts faster while minimizing the overall amount of interest you pay. Just make sure you can still afford the monthly payments on your lower-interest loans at the same time.

4. Consolidate Your Current Debts

Consolidating your bills can also put you on the fast track to getting out of debt. Combining all of your loans into one payment can lower your overall interest rate. Some business owners also appreciate the simplicity of having to pay only one bill each month.

5. Consider a Loan

While it may seem counterintuitive to take out a loan to pay down your debt, it can sometimes boost your business’s financial standing. As Fit Small Business notes, out of almost all forms of financing, SBA loans typically have the most competitive interest rates and longest repayment terms. However, if you need the cash fast, you may find the process for an SBA loan takes too long or requires too much paperwork.

If you’re a homeowner, you also have the option of tapping your largest financial asset—your home—to get out of business debt quickly. One way to access home equity is through traditional loans, though you’ll want to do the math to see if interest rates, terms, and other factors will help or hinder your financial situation.

What’s Best for You? Learn the Differences Between a Cash-Out Refinance, Home Equity Loan, HELOC, and Home Equity Investment

6. Get a Home Equity Investment

If the thought of taking on more debt or committing to yet another monthly payment fills you with dread, you have options. Homeowners can access their home equity—without taking out a loan, incurring more interest, or dealing with monthly payments. Home Equity Investments, like those from Hometap, give you a percentage of your home’s equity today in exchange for a share in the future value of your home. Since they’re an investment, rather than a loan, it’s a way to grab your equity without taking on more debt.

See how it works.

The tips above can help you get out of debt and start investing in the projects and initiatives that will take your business to the next level. If your business credit score took a ding during the process, no worries. Here’s how to get back on track.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

April 9, 2019May 20, 2022

How to Pay Off Your High-Interest Loans Faster Than Ever

There’s no better time than the present to set financial goals and get on the fast track to paying off your high-interest loans.

Follow these five steps to pay off your loans faster than ever.

Step 1: Understand Your Interest Rates

There’s a cost to using someone else’s money. That cost is interest. Interest is calculated different ways. You may see it quoted as an annual percentage rate (APR) but it can also accrue on a daily, monthly, or quarterly basis. Other lenders tack on interest cost to the outstanding amount you owe on a loan.

Interest rates are often based on your credit score and debt-to-income ratio. The better your score, the lower your interest rate. Higher scores indicate to lenders that you’re a higher risk. But don’t be fooled by low numbers. Home interest rates average about 5% today. That means a 30-year loan for $300,000 requires you to pay $279,000 in interest.

The average interest rate on a credit card is more than triple that at 17%. The average American has $6,000 in credit card debt. If you only make the minimum payments, you’ll pay $8,000 in interest—money that could be going into your savings or investment accounts to make you money. Add up your credit card debt and see how much you’re currently paying in interest.

Step 2: Pay Off High-Interest Debt

With a grasp on your interest, it’s time to focus on paying down debt, starting with your highest-interest debts. Investor.gov considers high-interest debts those with 8% interest or more with no tax advantages. First, figure out the minimum you need to pay for all your debts (the last thing you want is additional fees from not paying lower-priority debts!). Then, calculate how much more you can afford to pay toward your highest debts.

Paying off your highest-interest debt first is called the avalanche method. Another option, the snowball method, is to pay off your smallest balance debts first. “In absolute dollar terms, go with avalanche and shift extra dollars to the highest-interest rate debt first,” says Greg Knight, an Oakland-based CFP®. “If absolute dollar terms are not as important and [you] need the satisfaction of feeling like [you] are ‘winning,’ then use snowball to wipe out a few small debts.”

How much can an improved credit score save you?

Step 3: Consolidate Debt

Consider taking out one new loan to repay your outstanding debt. Then, you can focus on paying off this new debt with one monthly payment. Debt consolidation often lowers the overall interest you’re paying, particularly if you have lots of high-interest credit card debt.

Step 4: Avoid Additional Debt

If you don’t have the funds for it, don’t buy it. That doesn’t mean to put down the credit cards. It does mean paying your credit card bill in full every month. As Trent Hamm from The Simple Dollar explains, “Leave your card at home most of the time, and when you do use it, use it for specific purposes” like gas and groceries.

Step 5: Boost Your Budget

New year, new budget. The goal is to earn more and spend less so you can allocate your additional funds toward your debt. One way to earn more is to pick up a side gig, even for just a few hours a week.

The Hometap Option

Debt stress can keep up any homeowner up at night. For some homeowners, tapping into their home’s equity through a Hometap investment is a smart way to pay off debt without taking on any interest or monthly payments.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…

April 6, 2019June 17, 2022

5 Tips When Consolidating Credit Card Debt

“Debt consolidation means taking out one new loan large enough to repay some or all of your outstanding debt,” according to Credit Sesame. “You get the money, pay off your accounts, and then make a single monthly payment to pay off the new debt.”

But from personal loans to balance transfers, there’s no one-size-fits-all approach to consolidating your credit card debt. Here’s what to consider before deciding to consolidate your credit card debt as well as five ways to do so.

When to Consolidate

Credit debt consolidation may make sense if your debt is spread across multiple cards, making it hard for you to keep track of who and what you owe each month. With one monthly payment, you can ensure you’re paying down your debt and not accruing any unwanted interest.

You may also want to consolidate if you can lower your overall interest rate. Most credit cards have high interest rates, so it’s worth looking into consolidation options to see if you can save some cash.

When to Think Twice

If you’re in debt because you spend more than you earn, your solution isn’t credit debt consolidation. Instead, it’s reducing your spending or increasing your income—or both. ConsumerFinance.gov suggests taking a look at your spending habits to pinpoint why you’re in debt and where you can save.

Credit debt consolidation also isn’t a solution for avoiding interest rates. According to ConsumerFinance.gov, there’s a time limit to the promotional interest rate for most credit balance transfers. Once the promotional period ends, the interest rate on your card is likely to go up—along with your payment amount.

5 Ways to Consolidate Credit Card Debt

1. Check Your Credit Report and Scores

First things first: Check your credit reports and scores for accuracy. As Credit.com notes, an error could prevent you from qualifying for the debt consolidation help. Dispute any error you find.

2. Contemplate a Personal Loan

You can take out personal loans to pay off credit card debt. According to Credit Karma, a personal loan may offer a lower interest rate than your credit cards’ interest rates. You may also have a longer time—even several years—to pay off the loan.

3. Read the 0% APR Fine Print

As Discover reveals, an introductory APR of 0% might only apply to credit balance transfers. That means any new purchases you make may be charged the—often very high—standard APR. Check cardholder agreements beforehand to know what 0% APR applies to—and what it doesn’t.

4. Look Into Home Equity Loans

If you own a home, you can take out a loan that gives you a line of credit with your home equity as collateral. A home equity line of credit (HELOC) begins with the draw period when you can access the funds in your credit line. The draw period typically lasts 10 years but can range from five to 20, during which time you may only need to make interest-only payments.

However, as NerdWallet warns, you need to consider fees plus interest, which add up over the years. If your goal is ultimately drawing down your debt, you’ll need to make payments on interest and the principal.

5. Consider Home Equity Investments

Products like Hometap offer homeowners a way to access their home’s equity today without taking on additional monthly payments.

The path you choose to consolidate your credit card debt depends on your situation and what is going to provide you the greatest benefit. If you’re serious about consolidating your debt, make a budget, stick to it, and consider giving plastic a rest.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

March 11, 2019March 22, 2023

You Can Use Your Home Equity to Do…That?

Buying a home has its obvious rewards. Maybe less obvious are the myriad ways to tap into the equity you’ve built to fund your goals.

There are essentially two ways to tap into your equity: borrowing or sharing.

Homeowners can borrow against their equity via a home equity loan or a home equity line of credit (HELOC). However, these financing options do have a few drawbacks. For starters, both include the obligation to pay back the amount borrowed with interest and other fees.

Alternatively, equity sharing, or equity investing, like a Hometap Home Equity Investment, provides homeowners the flexibility to invest their wealth in more areas of their lives—not just in their homes. Hometap Investments offer no monthly payments, and no interest.

Find out what homeowners’ biggest financial goals are for 2022 in our free Homeowner Report.

Whether you opt for a home equity loan, HELOC, or Hometap Investment, here are four ways you can use that wealth to do what you really want.

1. Consolidate debt

Credit card debt weighs heavily on many Americans with average interest rates at 15%. That’s why a home equity loan with interest rates as low as 5% is so attractive. Use funds from your home equity loan to consolidate that credit card debt and significantly improve your financial posture.

Read 5 Tips for Consolidating Credit Card Debt >>

2. Pay for school

The cost of education has skyrocketed. But investing in your education or your children’s education provides lifelong returns. Private education loans may seem like a solid bet but they often have higher interest rates than a home equity loan. Plus, you can use your home equity funds to pay for college or offset the burden of student debt.

How to Use Your Home Equity to Get out of Student Loan Hell>>

3. Renovate your home

Build your dream kitchen. Renovate the unfinished basement. Add that party patio you’ve wanted. Home improvements are like a double rainbow. Not only do they provide instant gratification to the present homeowner but also that remodel can result in a profit when you sell, according to LendingTree.

4. Buy a second home

If you’re excited to add property to your portfolio, tapping into your home equity makes a lot of sense. Whether you’re considering a vacation home or investment property, home equity loans have lower rates comparatively to other types of loans like a second mortgage. As with any investment, you should familiarize yourself with the pros and cons of using your home equity to fund a second home.

What’s the Difference Between Financing a Vacation Home Versus an Investment Property?>>

Invest in You

Why wait to sell your home to access the equity you’ve earned? Accessing your home equity now allows you to invest in your present and future happiness, whether that’s achieving your financial goals faster or realizing a life goal that can also help improve your financial future.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.