Consolidate your debts

Couple geetting a debt consolidation loan

How to save money & eliminate debt faster with debt consolidation

Are you struggling to keep up with your monthly payments? Not just getting them all paid but also keeping up with due dates and the amounts due? If so, it may be time to consider consolidating your debts so you can get back on track and get your debt paid off. 

What is debt consolidation?

Debt consolidation solutions can not only make your monthly debt payments easier by lumping them into one, simple payment, they also can lower your overall interest rate, which means you can get your debt paid down more quickly and at a potentially significant savings.

Debt consolidation can be great for people who feel their debt is getting out of hand but whose credit scores are still good. For those folks whose credit score has already taken a hit, other debt relief solutions like a debt management plan or negotiating with creditors may be better options.

The 3 main benefits of debt consolidation

1. You can save money

As we said, it’s possible to get a lower interest rate through debt consolidation. When you take out a debt consolidation loan or transfer your credit card balances to a new credit card, you’ll likely reduce the interest rates you’re currently paying. For example, some balance transfer credit cards offer promotional APRs of 0% for 12 months or more, meaning you won’t be paying any interest at all for the duration of that promotion.

2. You can streamline your payment process

By consolidating your monthly bills, you can spend less time paying bills and more time enjoying watching your debt being paid off. Debt consolidation can allow you to make one payment every month instead of multiple payments.

3. You can eliminate your debt faster

Because you’re paying a lower interest rate, more of your monthly payment is going toward your principal balance, meaning you’ll wipe that debt out more quickly.

Is debt consolidation right for you?

The consolidation method you choose depends on your personal situation and what works best for your finances and the amount of debt you have. In general, though, most people consolidate debt through a debt consolidation loan (a type of personal loan) or a balance transfer credit card.

So how do you decide? Well, it all depends on the type of debt you have. If you just have credit card debt, a balance transfer card is probably the right choice for you; however, if you have a lot of credit card debt, you may not qualify for another card with a high enough credit limit to transfer all your balances.

Likewise, if you have other types of debt such as student loans, medical debt or auto loans with high interest rates, a balance transfer card probably isn’t your best option. That’s when you’ll most likely want to look at a debt consolidation loan.

Different debt consolidation options

With a debt consolidation loan, you’ll need to determine how much you want to borrow by assessing your debts and deciding which ones to include in the consolidation. Most lenders offer a couple of options: The first is that you can apply for a straightforward debt consolidation loan that is unsecured, meaning you don’t put up any collateral for it. Of course, there are limits to how much you can borrow under this option. Most banks max out somewhere around $25,000 to $40,000 for unsecured debt consolidation loans and you have to have excellent credit to qualify.

Another loan option is a home equity loan, which allows you to use the equity in your home to pay off your debts. The nice thing about this option is you can borrow significantly more and use the proceeds of the loan to pay off your debt right away. Keep in mind, however, that if you default on the loan for any reason, the bank could foreclose on your home. Like bankruptcy, a foreclosure can impact your credit scores and ability to get financing for up to 10 years.

This explainer on debt consolidation can help you determine what your best consolidation option may be. And you can learn more about the keys to successful debt consolidation here.

Helpful tools

To consider debt consolidation, look at the total debt you owe and the average interest rate you’re paying. Figure out how long it will take to pay off each card using a credit card payment calculator. Then review your budget to assess how much you can pay toward your debt each month. Use this debt consolidation calculator to determine what loan terms will work for you. You’ll need to check with potential lenders to find out if you qualify for these terms. Be sure to consider if you have the discipline to either close the accounts you’re paying off or use them only in an emergency.

Assess your debt calculator — Helps you answer the question, “Do I have too much debt?”

Debt settlement agreement — Build the contract for your settlement documenting the criteria you negotiate with your creditor.

Debt consolidation calculator — Assess if debt consolidation is a viable option for you.

Credit card payment calculator — Discover how long it will take to pay off your current credit card balance.