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Due to the continued increased cost of living, stagnated wages, and other life circumstances, many people may need to rely on credit cards and other forms of debt to finance their daily lives. Unfortunately, this often leads to the accumulation of a lot of different credit card accounts, each of which can carry a high interest rate and balance.

For those that have a lot of debt, one of the most common recommendations is to consolidate debt. For those that are looking to consolidate debt and regain financial freedom, there are several factors that should be considered before entering into any debt consolidation or repayment plan.

Consider Your Intent and Ability

The first factor to consider is whether you truly intend to pay off your debt and have the financial ability to do so. Many people find themselves in a lot of debt because they have not been able to budget their financial lives. In many cases, this gets them to a position where paying the debt back in a reasonable period of time even if they are able to make major changes to their lives.

If you are unable to find ways to cut back on your expenses or lifestyle, or do not have the means to make any payment, then it may be a good idea to consider other options, such as filing for bankruptcy. However, if you are willing to change your financial decisions and have some excess money after budgeting to repay the balance, then consolidating could be a great option.

Establish a Repayment Plan and Budget

Before entering into any repayment plan, you first need to figure out what your budget should be. Your budget should be conservative and include a lot of areas to better manage your finances, but should also be realistic. Your budget should definitely include a reserve to save up an emergency fund and also have a set payment available to pay back your consolidation loan.

Consider Your Options

Once you have determined your budget, the next step is to consider your options for debt consolidation. One of the most common forms of credit card consolidation is to open up an account that offers an introductory low interest rate. Many credit card providers entice new customers by offering zero percent financing for up to 18 months and also allow for free rollovers. While these could be the most affordable options for a few years, the low interest period is relatively short and provides you with little time to repay the balance.

Another option to repay your debt is to tap into your home equity. If you have more than 20% equity in your home, you could either cash out through a new mortgage or open a home equity loan. In any event, the interest rate that you will receive will be much lower than what you would have to pay on a traditional credit card.

The third option is to take out a loan against your 401k. 401k loans are often a good idea because any interest you pay is paid back into your account, which effectively makes them free. The only drawback is that this could delay your accumulation of retirement equity.