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How to Consolidate Debt
Debt  blog tag

How to Consolidate Debt

You can choose from several debt consolidation options and it’s critical to understand the pros and cons of each.

Home equity loans and lines of credit

PRO: Home equity loans and lines of credit typically have the lowest rates available because the loan is secured by your home. They also allow you to borrow significant amounts, assuming you have enough equity.

CON: Some lenders impose hefty up-front fees and a lengthy application process. However, please note that Figure has only one transparent origination feeDisclaimer1, and the application process takes as little as 5 minutes.

Personal loans

PRO: Personal loans allow you to borrow without pledging collateral.

CON: They typically have higher interest rates than home equity loans, and lenders might limit the amount you can borrow to a relatively small amount.

Balance transfer offers on credit cards

PRO: They are appealing when they come with 0% promotions.

CON: You typically pay a percentage of the amount you transfer up front, and eventually the promotion ends. If you can’t pay off your debt before then, you could easily end up paying double-digit interest rates.

Retirement plan loans

PRO: Retirement plan loans sound great because you ‘pay interest to yourself’.

CON: You pay an opportunity cost when you dip into your retirement savings. You also put your future at risk. If you can’t repay according to the plan’s rules, you’ll have significantly less in tax-favored accounts, and you may face additional taxes and penalties. Plus, state laws often protect the assets in retirement plans. Pulling money out exposes it to creditors, which can be disastrous in a worst-case scenario.

The definitive step by step process to get out of debt

  1. Understand where you're starting from

    1. You don't necessarily need to know all of the mechanics of loans, but some essential facts help you optimize your borrowing. It's critical to establish where you stand, so you can make a plan to tackle your debt. This includes looking at the appraised value of your home so you know how much you can take out of your equity.

  2. Get your credit score

    1. This is one of the essential steps to making sure you get the lowest APR possible. The higher your credit score, the lower your APR (or interest rate) will be.

  3. Explore your options

    1. Make sure you explore all your options for consolidating debt. Maybe a home equity loan isn’t the right approach given the value of your home. Or maybe getting a 0% balance transfer credit card is a better option if you’re confident you can pay off your debt by the end of the introductory period. The bottom line is this: you won’t know what’s best until you see all the options.

  4. Choose a plan and get started

    1. If you choose to go through with a home equity loan, or HELOC, Figure can fund your money is as few as 5 days². Once you have the funds, make sure to pay off all your other debts immediately. Once that’s done, make a schedule to pay off your new, consolidated debt.

  1. Disclaimer 1You will be responsible for an origination fee of up to 4.99% of your initial draw, depending on the state in which your property is located and your credit profile. You may also be responsible for paying recording fees, which vary by county, as well as a subordination fee if you ever ask Figure to voluntarily change lien position.

  2. Disclaimer 2Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing.

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