How can debt consolidation be used to help you?

Debt consolidation can help bring your multiple monthly installments under control by transforming them into one regular payment. However, debt consolidation isn’t a card that can help you get out of debt — you’ll need healthy spending habits to stay free of debt.

If you’re feeling overwhelmed by your debt and have difficulty managing multiple monthly installments, Debt consolidation could be a solution to handle your financial situation.

The household debt of America reached a new record $13.86 trillion during the first quarter of 2019, as reported by the Federal Reserve. 

The typical American family could be trying to balance credit card and student loans and mortgage, auto, and personal loans. 

Debt consolidation allows you to consolidate a range of outstanding debts into one monthly installment, which could assist you in managing your finances more effectively.

Let’s explore the nuances of debt consolidation and figure out if it’s beneficial for you.

What is the term “Debt Consolidation?

Debt consolidation is a method to consolidate various outstanding debts into one loan, with a single payment per month.

If you can combine your debt into one loan with a lower overall price, then it could aid in reducing fees for interest and make it easier to pay off your debts faster. 

However, consolidation won’t erase or eliminate the deficit. Be aware of the fact that regardless of a less expensive interest, you might be paying more in the long run because certain debt consolidation loans come with longer terms than the ones for the numerous debts you’re settling.

If you’re trying to keep track of your expenses, consider some tips before taking the loan to consolidate debt.

    • Contact your creditors to discuss your circumstances and determine whether they will make lower payments, reduce charges or decrease the interest rate. It is also possible to agree on an exact due date to make your monthly installments across your debts, thereby simplifying your financial situation.
    • Contact a certified credit counselor.
    • Beware of debt settlement companies that charge fees for negotiating your debt.

Common methods to consolidate debt

There are a variety of alternatives to consider if you decide to proceed by consolidating debts. The amount and type of your debts ought to factor into your decision.

Transfer of balance

A lot of credit cards have promotions with zero rates of interest for a balance transfer. If a balance-transfer credit card accepts you, and you’re eligible, you’ll be able to transfer multiple debts to one credit card to pay back your debt with a 0% rate for a specified period.

Before you perform an account transfer, be sure that you know what time and date your new card will begin charging interest. 

Check for the fees associated with balance transfers. Be aware that any new purchases made on your card could have no obligation to pay the interest rates of promotional offers depending on the card you use. 

It’s also essential to create an action plan to tackle your debts during the time of interest-free and ensuring that you don’t let them get out of control again.

Before you begin the transfer of balances onto an additional card, make sure you check for the card’s credit limit. It is important to consider the types of debts you’re going to transfer to the card since the credit limit could be less than your total debts or consume the available credit.

Personal Loan

Personal loans to consolidate debt are provided by a wide range of lenders, such as banks, credit unions, and online lenders.

These loans can be used to finance weddings, travel, and medical expenses — as well as to consolidate debt.

These are installment loans that combine your debts that are eligible into one monthly installment. A debt consolidation loan can be an effective option for managing your financial situation since you’ll know the amount you’ll have to cover each month and the length of time.

Before taking out a personal loan, make sure you’re familiar with the conditions and costs since they may raise the total amount you owe.

The Home Equity Line of Credit

Another option to consolidate debt is to apply for a home equity line credit or HELOC. This could be the riskiest option as you’ll need to use your home as collateral. If you’re not able to make payments on time, and you be forced to sell your house.

While the rates of interest on HELOCs may be less than the other debt consolidation alternatives, be sure to consider the possibility that you could lose your house to account before deciding on the HELOC.

Is Debt Consolidation Right for You?

If you’re having trouble managing the multiple debt payments and are ready to cut to curb your expenditure, then debt consolidation might be something you should consider. Before you commit know must to a program, you should take an in-depth look at your financial position.

A Debt Consolidation program could be a smart idea If …

  • You know why you’re in debt and why you’re trying to manage your spending.
  • You’d like to cut down on the amount of monthly payments you can manage.
  • Have a credit background that can make you eligible for a personal loan with lower interest, as well as a credit card that offers an initial 0% APR for balance transfers.
  • Current income should be sufficient to cover the debt repayment and any other obligations that you may be facing. If not, you’re at risk of having additional financial problems later on.

A Debt Consolidation program might not be the best option for you If …

  • It’s impossible to change your spending habits today.
  • There is only a small amount of debt that you could pay back promptly.
  • Your credit background could hinder you from obtaining the low-interest personal loan you need and promotional balance transfer APR.

What’s the next step?

The debt consolidation method may not resolve all of your financial issues. However, it might be a beneficial option when you can adhere to a debt management plan. 

You should consider consulting with a certified credit counselor or an accredited financial planner who might help you overcome your debt and achieve the financial journey.