Key takeaways
- Credit card debt has increased 16.3 percent nationally from last year.
- There are multiple methods to paying down credit card debt including balance transfer cards, loan consolidation and home equity agreements.
- Borrowers can also approach paying off their credit card debt by using the snowball or avalanche method.
If you’re looking to pay off debt, you’re not alone. According to Experian, credit card debt is up 16.3 percent nationally from Q2 of last year. However, Experian’s newest data indicates that the average credit card debt is around $5,525 per person. Suffice it to say, a lot of people are searching for debt relief options.
Most methods of paying off debt require you to pay interest, which means that you could end up spending a lot of extra money as you work toward a debt-free life. While 0 percent intro APR balance transfer credit cards give you the opportunity to pay down your credit card balances before they start accruing interest, many consumers are carrying too much debt to complete the payments before the interest kicks in.
Luckily, you have alternatives. Unlock offers a new type of home equity agreement that allows you to use the equity you’ve built in your home to pay off your debt — with no monthly payments and no interest. This debt consolidation alternative could be just what you need to get out of debt, get your finances back on track and start saving for the future.
Why do consumers go into credit card debt?
Why are so many people seeking debt relief? Consumers get into credit card debt when they make purchases on credit that they cannot afford to pay off in full, even with the best of intentions. As interest charges continue to accrue, their debts get larger — as do their monthly payments. Suddenly, what seemed like a simple monthly credit card balance has turned into a full-blown debt monster.
How can you get out of this kind of credit card debt? Some people are able to make it work with careful budgeting — but if your monthly payments already feel overwhelming, cutting back on other expenses may not make much of a dent.
This is where debt becomes dangerous. Once you start believing that you’ll be in debt forever, you may start adding to your credit cards instead of paying them off. Your balances grow, your interest compounds and a debt-free life seems simply out of reach.
For some consumers, the only thing that works is a debt reset. By paying off debt in full, often with a lump sum of cash, you can get your balances back down to zero and start putting your money to better use. That’s where Unlock can help. By offering you interest-free cash today in exchange for a percentage of your home’s value in the future, you could have everything you need to pay off your debt and begin the next phase of your life.
Ways you can pay down your debt
There are many ways of getting rid of credit card debt; however, some people need a little extra help to pay off their debt in full. Credit card consolidation, for example, allows you to combine your current debts into a single monthly payment, but there are other debt consolidation alternatives that could also save people a lot of money in the long run.
Debt snowball and debt avalanche
A popular debt repayment strategy, the snowball method motivates you to pick off the smaller amounts of balances bill by bill. You’ll start by paying down the lowest debt balance you owe one-by-one and work your way up to the highest loans.
During this process, you’ll continue to make the minimum payments on all of your other loans so you don’t fall behind. This method may cause you to pay more in interest overall, but it can help you build momentum and confidence as you pay down your debt, thus creating a snowball effect.
Conversely, the avalanche method prioritizes paying off your debts with the highest interest rates first while continuing to make the minimum payments on all of your other debts. Unlike the snowball method, the goal is to reduce the amount of interest you owe. This common debt repayment strategy will save you interest in the long term, giving you more funds to pay toward your principal.
If you consistently stick with either strategy, you will see wins. The snowball method could help you pay down expensive debts faster, while the avalanche method could be a beneficial option if you have high-interest debts.
Balance transfer credit cards
Many people with unpaid credit card balances use balance transfer credit cards to consolidate their outstanding credit card debt into a single monthly payment. The best balance transfer credit cards offer lengthy 0 percent intro APR periods that allow you to pay down your balance before it starts accruing interest.
Loan consolidation
If you owe a lot of money to multiple lenders, loan consolidation could help you pay off your debt without having to worry about balancing multiple monthly payments. By consolidating your debt under a single lender, you can make just one payment every month. If you have a history of missed or late payments on your record, consolidating your debt could also help you repair your credit.
However, if you aren’t offered a lower interest rate on your new loan, it may not be worth it to consolidate. Otherwise, you could end up paying more in interest overtime.
Home equity agreements
Home equity agreements are another popular — and effective — way to pay down debt quickly. Whether you’re taking out a home equity line of credit or applying for a reverse mortgage, using your home equity to pay off debt could save you money in the long run.
Unlock is a new home equity agreement company that offers homeowners a unique way to turn the equity in their home into cash — without paying interest or getting locked into a series of strict monthly payments. With Unlock, you get cash upfront, interest-free. In return, you agree to give Unlock a share of the proceeds when you sell your home in the future.
Think of Unlock as an investor, not a lender. By giving Unlock a share in your home, you get the opportunity to use the equity you’ve built to pay off your outstanding debt. If you’re a homeowner looking for debt consolidation alternatives, Unlock is definitely worth considering.
Why Unlock could be a good option
If you’re carrying a lot of credit card debt, Unlock could be a good alternative to loan consolidation. Some people may be able to combine their existing credit card debt onto a balance transfer credit card and pay it off before the 0 percent intro APR offer expires. However,many people have enough credit card debt that they’ll be paying significant amounts of money in interest no matter how they consolidate.
Unlock is a debt consolidation alternative that allows you to pay off your debt in full without paying interest. By giving Unlock a share in your home, you’ll be able to access cash that can be used to pay off your debt in a lump sum.
Here are the pros and cons of working with Unlock:
Pros
- Unlock allows you to access cash that can be used for anything you want — including debt repayment.
- There are no monthly payments and no interest charges.
- You retain full ownership of your home.
Cons
- You need to have built up at least 20 percent equity in your home.
- You must either sell your home or buy out Unlock’s investment by the end of your agreement term (typically 10 years).
- You must have a debt-to-income ratio (DTI) of under 45 percent.
A common agreement with Unlock might give you 10 percent of your home’s value in cash now in exchange for 16 percent of your home’s value when you sell later. These percentages will be based on the housing market at the time of each transaction.
Let’s say your house is valued at $500,000 upon entering the agreement. Unlock will provide you with 10 percent in a $50,000 investment upfront. At the end of the agreement, if your home maintains its same value, you would pay Unlock 16 percent of $500,000, or $80,000.
If the market value of your home increases to $575,000, Unlock’s 16 percent share would increase to $92,000. If the market value decreases to $425,000, then Unlock’s 16 percent share would decrease to $68,000.
Unlock’s share does not include additional value added to the property over time. This means that if you complete home improvement projects that increase the value of your home before you sell, you get to keep that value for yourself.
Who is a good fit for Unlock? If you have at least 20 percent equity in your home and a FICO credit score above 500, you’ll probably be a good candidate — and if you want to know for sure, here’s where you can check your Unlock eligibility. To learn more about how you can leverage this option, read our full Unlock review.
The bottom line
Are you looking to pay off debt quickly? Home equity agreements are a good debt consolidation alternative — and may allow you to pay off your debt with the equity you’ve already gained in your home. The breathing space that Unlock can create allows debtholders to focus on eliminating future debt traps, while restoring their opportunity to achieve a debt-free life.
