Is debt consolidation worth considering?<\/h2>\n
Consolidating your debt may be a good idea when you have:<\/p>\n
High interest rates on multiple debts.<\/strong> When you move or combine higher-interest debt to a lower-interest loan or credit card, you might avoid paying extra on interest. Paying lower interest rates on fewer balances can help you to pay off your debt faster.<\/p>\n Variable interest rates.<\/strong> Planning for unexpected expenses is a lot easier when you know exactly what your monthly payments will be. When your interest rates are fixed instead of variable, your monthly payments are predictable and much easier to budget for.<\/p>\n Multiple payment due dates.<\/strong> Managing multiple payments can be confusing, not to mention it can affect your monthly cash flow at inconvenient times. Consolidating your debt into a single monthly payment can help you stay focused and reduce the risk of missed payments and late fees.<\/p>\n A lower credit score.<\/strong> In some cases, consolidating debt can improve your credit utilization and in turn, your credit score. By paying off multiple high-interest debts and maintaining a single loan, you may demonstrate responsible financial behavior and build good credit over time.<\/p>\n Before jumping into debt consolidation options, there are some important things to consider:<\/p>\n Loan fees and costs.<\/strong> It\u2019s important to understand any fees or costs associated with the process. Some consolidation options may come with loan origination fees, balance transfer fees or closing costs. Be sure to factor these expenses into your decision-making process.<\/p>\n Debt repayment terms.<\/strong> You\u2019ll want to be aware of the repayment period and payment due dates up front. It may be a good idea to see if you can pay off debt faster with a lower-rate or fixed-rate interest. Longer loan terms may result in lower monthly payments, but you could end up paying more interest over time.<\/p>\n Some options, like home equity loans and home equity lines of credit (HELOC), require you to \u201csecure\u201d your loan amount with collateral you already have. These types of loans can be risky, because if you make late payments or miss payments altogether, you could be penalized with a lien or in extreme cases \u2014 foreclosure.<\/p>\n Financial discipline.<\/strong> Consolidating your debt is not a magic fix. It’s essential to stay focused and avoid accumulating new debt while paying off any new consolidation loan.<\/p>\n Here are two of the most popular options borrowers consider when evaluating lenders to consolidate and refinance debt:<\/p>\n If you carry high-interest credit card debt<\/a>, one popular option is to use a 0% balance transfer credit card. If you find an offer with a low transfer fee, or no transfer fee \u2014 that\u2019s even better. To ensure you take full advantage of a 0% balance transfer offer, it\u2019s sometimes important that you don\u2019t use the card to make any new purchases. You\u2019ll also want to be sure that you can pay off your entire transferred balance amount in full before the introductory period ends and the rate resets.<\/p>\n Personal loans, home equity loans and even loans from specialized lenders can provide the funds needed to pay off your existing debts. These loans typically offer fixed interest rates and predictable monthly loan payments, making it easier to manage your finances.<\/p>\n It\u2019s important to recognize the difference between debt consolidation and debt settlement. Sometimes, third-party agencies will advertise debt relief products or credit counseling services and promise to \u201cerase\u201d your debt by negotiating with your creditors on your behalf. They might ask you to pay fees up front, or to stop making payments on your existing debt altogether. If you choose to work with a for-profit debt settlement company, it\u2019s very important to find a reputable firm so that you don\u2019t jeopardize your long-term credit health.<\/p>\n Over time, consolidating and paying down your debt can factor into an improved credit score<\/a> if you continue to make timely payments and reduce your overall credit utilization<\/a>. Initially, you might see a slight dip in your credit score due to the hard inquiry that comes with applying for a consolidation loan, for example.<\/p>\n Your credit score varies based on your financial behavior and circumstances. It\u2019s important to know you can always monitor your credit report to ensure there are no errors or inconsistencies affecting your credit score.<\/p>\n Let\u2019s examine two sample journeys through debt consolidation, and what can happen as a result. Keep in mind that these figures are only meant for illustrative purposes.<\/p>\n Danielle has a good credit score and qualifies for a $9,000 personal loan with a fixed 40% APR for a 6-year term and no late payment fees or penalties. Her total credit card debt is $6,000 with a 20% APR, and she also carries a $3,000 personal loan with a one-year term and a 39% APR.<\/p>\n Q: Should Danielle consider using her personal loan offer to consolidate her other debt?<\/strong> Her new monthly minimum payment would be $331.25 \u2014 lowering her monthly payment by $214.65 per month compared to the combined monthly payments she is currently making.<\/p>\n A: Yes, if\u2026<\/strong><\/p>\n <\/p>\n Sean has a fair credit score of 650 and qualifies for a five-year $6,000 unsecured personal loan with 50% APR from his credit union. He currently has three monthly bills which consist of a $2,000 personal loan with 50% APR and two maxed-out credit cards.<\/p>\n Q: Should Sean consider using his new loan offer to consolidate his three monthly bills?<\/strong> His new monthly minimum payment would be $273.63 \u2014 lowering his minimum payments by approximately $20 per month.<\/p>\n A: Yes, if\u2026<\/strong><\/p>\n Achieving financial wellness goes beyond consolidating debt. Here are some more proven strategies that may help you reduce the amount of debt you owe:<\/p>\n Responsible spending habits.<\/strong> Having a well-structured budget ensures you’re living within your means and working toward your personal finance goals. It\u2019s a good first step toward gaining a better view of what\u2019s coming in and what\u2019s going out. Keeping track of your income and expenses over time helps you to identify areas where you can cut back, so more of your income can go towards debt repayment.<\/p>\n The debt snowball.<\/strong> This debt paydown method puts momentum on your side. Using a debt snowball, you\u2019ll focus on paying off your smallest debt first, while making minimum payments on everything else. Once your smallest debt is paid off, you shift your focus to the next smallest balance. Doing this gives you a sense of accomplishment as you pay off debts, one by one.<\/p>\n The debt avalanche.<\/strong> Using this method, you\u2019ll make progress by paying off high-interest debts first. It requires you to make minimum payments on lower-interest debts until your highest-interest debt is paid off, moving down the hill and reducing the amount of interest you\u2019ll pay over time.<\/p>\n When it comes to debt consolidation, there is no one answer. Depending on your financial situation, consolidating your debt can be a powerful strategy to help you achieve excellent credit and reach your goals. When you know the pros and cons of debt consolidation, you can take advantage of lower interest rates and extended payment terms and pay off your current debt faster.<\/p>\n 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.<\/em><\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Does it feel like your personal debt is stacking up? If you\u2019re feeling overwhelmed, debt consolidation might be one …<\/p>\n","protected":false},"author":38,"featured_media":14959,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[623,626],"tags":[],"class_list":["post-12718","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-credit-health","category-improving-finances"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","pp_post_mime_type":"publish","yoast_head":"\nThings to consider before consolidating debt<\/h2>\n
How to consolidate debt<\/h2>\n
Credit Card Balance Transfers<\/h3>\n
Debt Consolidation Loans<\/h3>\n
What\u2019s the difference between debt consolidation and debt settlement?<\/h2>\n
Does debt consolidation hurt credit scores?<\/h2>\n
Examples of debt consolidation<\/h2>\n
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How to get out of debt.<\/h2>\n
The bottom line.<\/h2>\n