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At one point in a person's life, he will experience a financial crisis. We are often told to have an emergency fund for unexpected expenses. But no matter how prepared you think you are, there are situations way beyond your control. Who would have thought that as we welcomed 2020 a pandemic was also waiting to happen? Suddenly your financial situation have gone from good to bad in a matter of months. When you started to struggle to pay your bills and your debts are piling up, how do you cope? 

The first thing to do is to find a solution on how to get out of debt. If you've heard about debt consolidation, you're heading for a good start. Debt consolidation is simply combining various debts into one debt. There are different debt consolidation solution and it's important to choose the most effective solution that works for you.

The most common solution is borrowing money from family and friends. They don't charge interest and will not make the payment term onerous. However, this is also the most difficult way to solve your debt problems. The current economic situation is very challenging for everybody. Personal relationships may be put on the line.

If the source of your problem is credit card debt, then managing the problem will help improve your situation. According to statistics, an American has an average of 4 credit cards. If you are unable to pay your debts on due date or in full, you are charged with penalties and interests. If that is the scenario of your 4 credit cards, imagine how much money you are giving away to the credit card companies and probably you're not being able to pay off the principal. Look for a new credit card that offers balance transfer at 0% interest or at a lower interest than what you are currently paying. 

A personal loan offers lower interest rate and gives you access to money upfront that you can use to pay off all your outstanding debts. Compared to a credit card, you will not be charged of an annual card fee. But you must have a good credit rating to qualify. It is easier to apply for unsecured loan but you must know the fine prints or you'll end up digging yourself a deeper hole. 

You can also consider cash-out refinancing if you have an existing mortgage. It allows you to take out a new loan at a higher amount than what you currently owe. This means having extra money you can use to pay off your other debts. Cash-out refinancing also offers lower interest rates than credit card loans. But you have to determine first how much money you really need to pay off your consolidated debt.

Choosing the most effective debt consolidation solution requires knowledge of your financial situation in order to effectively find what works best for you. The goal is to make coping with debt easier. Remember that what you are doing is getting another debt. You still have an obligation but a more manageable one.