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Americans Explore Strategies to Tackle Record-High Debt Amid Inflation and Recession Concerns

As the nation grapples with the daunting challenges of rising inflation and looming recession fears, many Americans are searching for ways to regain their financial footing. In the face of record-high debt, individuals are increasingly turning to various strategies to ease their financial burdens and secure their economic futures. With Labor Day just around the corner, now is the perfect time for people to explore these options and embark on a journey towards financial stability.

Personal Loans: A Path to Debt Freedom

Personal loans have emerged as a popular choice for those seeking to break free from the shackles of high-interest debt. These loans offer the flexibility of a lump-sum payment, with amounts ranging from a few hundred dollars to several thousand. The allure of personal loans lies in their remarkably low interest rates, often as low as 4.6%. This is a stark contrast to the average credit card interest rate, which stands at a staggering 20.68%, according to data from the Federal Reserve Bank of St. Louis.

Repayment of personal loans is structured around fixed monthly installments, typically spanning one to five years. The interest rates applied, however, depend on individual factors such as credit history, income, and debt-to-income ratios. The application process is user-friendly, with online and in-person options available. Initially, lenders conduct a “soft inquiry” into an applicant’s credit history for prequalification purposes. This step allows lenders to estimate the borrower’s eligible loan amount without affecting their credit score. Upon prequalification, a “hard inquiry” is conducted, involving a more in-depth credit assessment to determine final approval. It’s worth noting that this hard inquiry may have a minor impact on the applicant’s credit score.

While some lenders may impose origination fees and early repayment penalties, unsecured personal loans don’t require borrowers to pledge collateral like their homes.

If you’re eager to liberate yourself from high-interest debt, the Credible marketplace offers a platform to compare loan options from various lenders without affecting your credit score.

Balance Transfer Cards: A Breather for Credit Card Debt

For those ensnared by high-interest credit card debt, a balance transfer card may offer a lifeline. These cards enable individuals to shift their credit card balances to a new card, often with a grace period free from interest. This introductory 0% APR period can extend for up to a year, though it must last at least six months, as stipulated by the CFPB. During this grace period, cardholders can steadily eliminate their credit card balance through monthly payments, all without incurring interest charges.

However, it’s crucial to note that credit card companies typically impose balance transfer fees, ranging from 3% to 5% of the total amount transferred. To fully capitalize on this strategy, cardholders must diligently clear their balances before the introductory grace period expires, as interest may begin to accrue thereafter.

The application process for balance transfer cards is straightforward, with applicants providing personal details and undergoing a credit check for qualification purposes.

To explore your credit card options, including balance transfer cards, you can evaluate benefits from multiple lenders through the Credible marketplace to discover which cards align with your financial goals.

Leveraging Home Equity with HELOCs

Homeowners are presented with a unique opportunity to leverage their home equity through Home Equity Lines of Credit (HELOCs). Home equity represents the difference between a property’s market value and the outstanding mortgage balance. Lenders often extend a line of credit to borrowers based on a percentage of this home equity, much like a credit card. HELOCs typically offer lower interest rates compared to credit cards, providing homeowners with an advantageous financial tool. These interest rates can be either fixed or variable, adding to the flexibility of this option. Moreover, as homeowners diligently pay down their HELOCs, more credit becomes available for future use.

The borrowing capacity typically allows homeowners to access up to 85% of their home equity, as detailed by Bank of America. A typical HELOC structure includes a 10-year draw period during which borrowers can utilize funds up to the predetermined credit limit. Subsequently, a 20-year repayment period commences. It’s essential to recognize that the home serves as collateral for the line of credit, and failure to meet obligations could result in severe consequences, including potential foreclosure.

Approval for a HELOC hinges on having a FICO score of 660 or higher, as highlighted in U.S. Bank’s publication, along with other relevant factors.

Strategic Approaches to Tackle Credit Card Debt

For those grappling with credit card debt, strategic approaches can offer a path to financial freedom. Two widely adopted methods include:

Snowball method: Begin by paying off the smallest debt, then roll the payment into the next-smallest one.

Avalanche method: Prioritize paying off the debt with the highest balance, subsequently rolling payments into the next-largest obligation.

In addition to these methods, online calculators can assist individuals in determining monthly payment amounts to achieve specific credit card payoff goals within defined timeframes.

If you’re seeking ways to reduce your monthly expenses and conquer high-interest credit card debt more efficiently, a personal loan might be the answer. Contact Credible to connect with a loan expert and explore this option further.

Home Equity Loans: A Lump Sum for Financial Goals

Much like HELOCs, home equity loans empower individuals to access funds based on their home equity. However, these loans are disbursed as lump sums rather than revolving lines of credit. While they can be used to alleviate debt, financial experts often recommend directing these funds towards wealth-building endeavors, such as home renovations that enhance property value. Others opt for home equity loans to finance significant expenses, like vehicle purchases or educational costs.

Just like HELOCs, home equity loans require the home to serve as collateral, and some lenders may apply loan origination fees. Repayment is facilitated through fixed interest rates, with monthly installments spanning anywhere from five to 30 years, as reported by U.S. Bank.

If you’re contemplating home improvements to boost your property’s value or have other financial goals in mind, consider exploring a home improvement loan. Visit Credible to engage with a loan expert who can provide answers to your inquiries and guide you through the process.

In these challenging economic times, Americans are taking proactive steps to regain control of their finances and pave the way for a more secure future. With a multitude of strategies and options available, individuals can navigate the treacherous waters of high debt, inflation, and recession fears with confidence and determination.

Download our app MadbuMax on the Apple App Store for the latest news and financial tools. Interested in getting your finances in order do not forget to check Dr. Paul Etienne’s best-seller book on personal finance. To access more resources, tools, and services please click here. Also, do not forget to follow Dr. Etienne on IG or Twitter.


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