When you’ve taken on multiple debts and money is tight, you might consider debt consolidation to strategically manage your finances. It typically involves using a debt consolidation loan, a personal loan or another credit product to cover one’s total outstanding debts, which they’d pay off individually and in full. The borrower will still be in debt to the sole creditor until the loan is paid off, though the process might produce a lower monthly payment, a lower APR (annual percentage rate) and/or fewer monthly payments to juggle.
If you decide that debt consolidation is right for your situation, carefully review all of your options to find a method that works for you. The following are some debt consolidation strategies that can help you improve your financial situation and eliminate your debt.
Debt Consolidation Loans
Using a personal or debt consolidation loan is a common credit repayment strategy. You can get a loan from a variety of sources, like banks, credit unions, online lenders and even your own network. If you don’t qualify for a bank or credit union loan, since they may require you to have a good credit score or be an existing customer, online loans may be available in the amount you need to consolidate all of your debt.
If you choose a personal loan for debt consolidation, look for a lender that doesn’t charge an early repayment fee. You want the ability to pay more than your minimum monthly payment, if possible — it could help you save on interest and shorten the amount of time it takes to repay your loan. It’s another way you can be in control of your loan and personalize it to your needs.
Credit Card Balance Transfer
Some credit cards offer a balance transfer introductory period with zero or low percentage APR. If you have credit card debt, you could take advantage of this method by transferring all of your other credit card debt to the new account. You’d then try to pay off all the debt within the promotional period to avoid accruing interest on any unpaid balance. However, this method may only work for credit card debt. You’d also likely need a good credit score to qualify for this kind of offer.
Third-Party Nonprofit Debt Consolidation
A credit consolidation nonprofit may also be able to help you eliminate debt. These programs vary, but most involve negotiations with creditors on your behalf for a lower monthly payment, a lower APR or other reduction in debts. You would continue to make payments to the debt consolidation company until your responsibility is complete.
Regardless of the method in which you eliminate your debt, these debt repayment tips can help you get to a zero-dollar-balance sooner.
Frequently Check Your Budget
This doesn’t mean that you can create a budget one time and assume that your work is over. Sticking to a budget requires regular checkups and adjustments to make sure that you’re actually living within your means. If you have a hard time remembering to check in on your finances, set a recurring calendar reminder for yourself until it becomes a daily habit. Your budget will determine how much you can realistically afford to pay towards your debt each month. Your income and expenses likely fluctuate at least a little bit, so you should know exactly where your money is allocated each month in order to avoid unplanned expenses.
Take Advantage of Personal Finance Apps
Today’s top personal finance apps are great tools to help you save, manage and budget money while you repay your debt. While the specific features vary, the benefit that most personal finance apps have over manually budgeting is that they can automatically categorize your digital and card transactions and allocate these towards spending limits, which can help save you a lot of time.
Debt consolidation is just one way to strategically reduce your credit balance. If you prefer a different route, these alternatives can help you eliminate debt and get back on track financially.
Sometimes, negotiating with your creditor(s) can help you save money as you pay down your debts. To do this, call your creditor’s customer service number and speak with a representative about paying off or reducing your balance. Keep in mind that haggling for a lower rate or balance reduction isn’t a guarantee, but you can always try it for free.
While closing out a credit line, such as a credit card, can lower your credit score a few notches, it might be a better idea to just pay down your balance and keep the account open. Reducing your credit utilization ratio can actually improve your credit rating.
Debt settlement is similar to debt negotiations, but your responsibility is complete when the debt has been settled. Not all debts may be settled, and not all people may qualify for this type of credit relief. Note that this method may also negatively impact your credit report, as settlements are reported to the major credit reporting bureaus. If you choose to go with this method, you might need a sizeable portion of your total balance available to make a payment at the time you contact your creditor since they may ask for a portion of your total balance.
Aggressively Pay Down Debts
You don’t need to combine your debts in order to pay them off; a strict budgeting strategy can be just as effective in eliminating your credit balance. Financial experts recommend finding a budgeting plan that helps to motivate you rather than limit you. If you’re looking for fast results, some aggressive budgeting plans include the debt snowball and the 50-30-20 method.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.