How to Consolidate Debt and Save Money
Life moves fast, unexpected things happen, and sometimes we find ourselves with more debt payments than we can keep up with.
But, that’s okay, it’s life, and it’s also not the end of the world.
If you find yourself in a situation like this, you have options and choices to make to reduce and pay off your debt. The different options available fall under the umbrella of debt consolidation.
Debt consolidation is the process of taking multiple debts and their respective payments and combining all of these into one debt with only one new payment to make with a lower interest rate attached.
If that sounds overwhelming, don’t worry, we will break the process of debt consolidation down into bite-sized chunks.
The first benefit of debt consolidation is that you will go from multiple monthly payments to keep track of one single payment. Debt consolidation makes your finances easier to manage and keep track of.
Second, if done properly, once all the debt is consolidated, the interest rate paid on the outstanding debt should be lower than before consolidation.
The third benefit to consolidating debt is it will ideally help it be paid off faster. Making the minimum payments on the average credit card can take more than 10 years to pay off. Debt consolidation can help improve the time to pay off.
Debt consolidation is primarily for credit card debt but the following kinds of debt can also be consolidated; medical debt, past due utilities, collections, payday loans, unsecured loans, and more.
Fortunately, there are different ways to go about consolidating debt, it isn’t one size fits all or if the size doesn’t fit you're out of luck. Here are the main ways debt can be consolidated.
Using a personal loan or debt consolidation loan is the most common DYI approach to debt consolidation. Prepare all your documents beforehand, calculate the amount of debt you have, and the current interest being paid on it.
Next, start comparing your loan options. You can get personal and debt consolidation loans from various online lenders, banks, and credit unions. Assess all your options and go with the best terms and lowest interest rates.
Once approved for the loan, take the money issues through the loan and pay off your multiple debts. Voila, now you only have one payment, the new loan.
If consolidating your debt yourself seems intimidating and you don’t feel up to the task. Not to worry. There are credit counseling organizations that, for a fee, will help. They will help you gather all your documents and outstanding debt, and convert to a single payment.
If all the debt you want to consolidate is attached to multiple credit cards then taking advantage of a balance transfer offer could be your solution. Credit card companies will sometimes offer the first year 0% APR on balance transfers if you get a new credit card with them.
If executed correctly this can be a great way to consolidate debt and not pay interest on your debt for the first year. Ideally, you can pay it off in the first year and not have to pay interest but sometimes that might not be an option.
There are other riskier options to consolidate debt which should be considered with caution and a grain of salt. Debt can also be consolidated by asking a family member for financial help, an auto title loan, or a home equity loan.
Once again, approach these options with caution.
So what now? Now that you have a basic understanding of debt consolidation, what it is, and how you can use it to improve your current and future financial situation, it’s time to take action and consolidate your debt!