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From merging multiple balances into a single loan to leveraging your home’s equity, we’ve compiled five basic tips to consolidate debt and help keep your finances on track.
In a fast-paced world where staying on top of finances can feel like a balancing act, debt consolidation is often an ideal option for those looking to simplify (and potentially expedite) their approach to paying off what they owe. For many, it’s a practical solution that saves time, money and headaches.
Debt consolidation is especially a no-brainer for individuals plagued by high interest rates, such as those that come with many credit cards. Ultimately, the idea is to work down debt in a way that’s more efficient and manageable, so you can boost your overall financial wellness.
The idea of consolidating debt is fairly straightforward: You’ll likely work with a lender or other credit professional to combine multiple financial obligations into a single monthly payment – ideally one with a significantly lower interest rate than what you’re currently paying – and one that not only consolidates your finances … but your worries, as well.
For example, if you have multiple credit cards with interest rates as high as 20% or higher – and your credit is in good shape – rather than racking up interest costs by making minimum payments on each card, you could potentially consolidate that debt at a much lower interest rate. With less interest to worry about each month and a payback term that you’re comfortable with, you can breathe easier while paying off your debt and strengthening your financial future.
Note: While debt consolidation makes sense for some, it might not be the right option for others, especially individuals who could potentially experience a slight ding to their credit score. (However, making the payments on time could potentially improve your credit.) Regardless, a great first step is to talk to a lender or other financial professional to go over your options and discuss next steps. You can also assess your current debt and estimate monthly payments by trying out our helpful calculator below.
Key Ways to Consolidate Debt:
One of the simplest, most convenient (and therefore most common) ways to manage debt is to apply for a personal debt consolidation loan with a reputable financial institution, preferably one that offers competitive interest rates. It also helps to seek out a bank that offers convenience through online, over-the-phone and in-person application options, as well as flexible terms.
Work with a professional lender known for providing free consultations, automatic payment discounts and a seamless process – especially when it comes to paying various creditors directly on your behalf – so all you have to worry about is making one easy monthly payment!
As long as you have good credit and don’t mind potentially having to pay an initial transfer fee, many credit cards offer an introductory 0% annual percentage rate (APR) for a limited time. If you’re eligible, it may make sense to transfer your balances owed onto such a card to take advantage of zero interest.
This could be yet another plausible option in terms of saving in the big picture and making one easy monthly payment. Remember: To make the best use of this option for 0% interest, you would want to pay off as much of the card as you can within the promotional time period.
If you’ve built enough equity in a home, you could potentially use it as collateral to consolidate debt – with a low-interest home equity line of credit (HELOC) or home equity loan! Talk to a helpful lender to see if either of these options may be right for you.
While you should first consider the options above, if circumstances call for it, you could potentially consolidate debt by utilizing your retirement savings as a last resort. This could involve taking out a low-interest loan against your employer-sponsored 401(k), for example, as long as that option is available.
One benefit with this approach is that it’s less likely to hurt your credit. However, it’s still worth it to talk to a lender or other financial professional to consider all your options, especially since pulling from your retirement funds impacts your ability to enjoy your sunset years. Not to mention, you’ll earn less in interest and may also have to pay certain fees.
At the end of the day, when seeking out opportunities to consolidate debt – and increase overall mindfulness around healthy debt management – it never hurts to sit down with a certified credit counselor who can help provide guidance. The National Foundation for Credit Counseling (NFCC), for example, is the largest and longest-serving nonprofit financial counseling organization in the U.S., and it may be able to pull your credit report at no cost and walk through next steps.
Credit counselors may also be able to help you set up a repayment plan, pointing you in the right direction when it comes to finding a consolidation option that’s right for you. They might even be able to work alongside your lender when it comes time to apply for a low-interest debt consolidation loan.
Consolidating debt can be a proactive step toward achieving financial stability and peace of mind through more manageable payments. By following the practical steps we’ve outlined above, and by sitting down with a knowledgeable lender for a free consultation, you can take control of your finances and build a brighter financial future – For a Better Way of Life.®
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