If you have equity in your home-meaning you owe less than the market value of the property- you may be able to use that equity to consolidate your debts. If you choose this route, make sure you can commit to paying the balance before the end of the promotional term or you may find yourself facing another high-interest payment. This cost will be applied to your balance. Typically, you’ll have to pay a transfer fee of 3% to 5% of the transferred sum. These cards allow you to transfer your balance from one card to another and make payments at 0% interest for a limited time (usually 12-18 months). Some credit card issuers provide a very appealing balance transfer rate, but you will have to see if it’s available to you. With that being said, a good credit score may help lower the interest rate. This may result in a higher interest rate and less money for the loan. Personal loans can be unsecured, which means the borrower is not required to provide any collateral. This type of consolidation loan is typically provided by a bank, credit union, peer-to-peer lender, or even a family member or friend. It’s important to ask the counseling agency what their processes and procedures are so that you have a clear understanding of how they will work on your behalf with your creditors. These plans are offered by nonprofit credit counseling organizations, who may negotiate interest rate reductions from credit card issuers to arrive at a reasonable monthly payment for the consumer. The purpose of a debt management plan is to potentially reduce your interest rate, lower your monthly payments, and eradicate your debt in 3-5 years. Also, remember to do your own research before you decide which method to move forward with. The option you choose should be based on what’s right for your budget and time frame. This next step will require some research, but here are some options to choose from: Ī debt management plan, a home equity loan and borrowing from a savings/retirement account are some of the ways you may consolidate your debt. Is there any money left over after making those payments to pay off credit cards or a loan? Your monthly consolidation payment must be affordable. Review your monthly budget and your spending on needs such as food, rent, utilities, and transportation. Determine Affordability of the Monthly Payment Your weighted average interest rate will provide a benchmark for the lender to beat. There are online calculators that can help you perform the calculation. If you have more than one credit card you may have differing interest rates that will need to be averaged to establish the weighted average interest rate you are paying on multiple credit cards. If you decide to combine your debts and use a loan or apply for a 0% credit card to pay them off, you will need to know how much to borrow. The first step in debt consolidation is determining how much you owe. When you can afford a lump payment that actually lowers the principal balance, rather than just satisfying the minimum payment required.ĭebt consolidation may be beneficial as it can lower your interest rate and monthly payment to a more affordable rate.
When you can add another monthly payment to your household budget.When you qualify for a credit card with a 0% interest rate.When your monthly income is more than your monthly costs.Here are some of the indicators that debt consolidation might be the right option for you: You’ll be able to manage your debt in one monthly payment rather than having to keep track of multiple payments on different due dates. If you’re looking for ways to be more responsible with your money and avoid relying on credit cards, debt consolidation is a strategy that can help you get started. Each person’s debt situation is unique, but if you have several high-interest obligations like credit card payments and find yourself struggling to pay even the minimum each month, this might be an option for you. Debt consolidation is the process of bringing together many debts into a single payment.
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