everything you need to know about debt consolidation
Debt consolidation is the process of using new financing to combine multiple debts into a single monthly payment. People typically seek debt consolidation when paying off high-interest debt, such as credit cards.
If done correctly, this tactic can help you pay off your debt faster and save you money in interest rate fees. Also, reducing your monthly bill to one lender is a helpful and convenient way to manage debt. The key is to find financing that offers a lower and fixed interest rate.
how to consolidate your debt
You can consolidate your debt in multiple ways, including refinancing your mortgage, opening a HELOC, or seeking assistance from the Federal Direct Loan Program. However, two of the most common and accessible methods are opening a personal loan or a balance transfer credit card.
personal loan
Personal loans usually have lower interest rates than credit cards, so they can be ideal for consolidating debt. With this method, you’ll use the funds you receive from your loan to pay off all your existing debt. You’ll then set up monthly payments to repay the loan within a set timeframe.
Once you've paid off your cards, spending the newly available credit might be tempting. However, debt consolidation is only beneficial if you stop acquiring debt. Be mindful of your spending habits throughout the process to avoid paying more in the long run.
At BlueOx Credit Union, we offer generous personal loans with competitively low rates. Apply online and pay off your high-interest credit cards today! Your good credit and a signature are all you need!
balance transfer credit card
Another consolidation method is transferring all your existing debt onto a 0% interest, balance transfer credit card. Remember, most financial institutions only offer 0% interest for a short period. Make sure you can pay off the entire balance within that time frame, or you could end up paying more in total interest.
Open a BlueOx Credit Union Visa® Platinum Credit Card today and enjoy 0% APR on balance transfers for 6 months! Stop by any of our branches or call a Member Service Advisor at (800) 648-8035 for more information.
should you consolidate your debt?
Debt consolidation isn’t a one-size-fits-all solution to debt concerns. In fact, there are many scenarios where consolidating your debt isn’t a helpful approach. A few factors to consider are the amount you owe, your credit score, and your ability to repay. Continue reading to learn more:
when debt consolidation is a good financial strategy
- You have a good enough credit score to qualify for a fixed, low-interest rate loan or 0% transfer balance credit card. You likely won’t be offered a better rate than your current debt if your credit score is low.
- You have a high-interest form of debt and you’d save significantly from having the rate lowered.
- You have a manageable amount of debt and would enjoy the convenience of one payment, one monthly due date, and only owing one lender.
when you should consider other options
- If your monthly debt payments exceed 50% of your monthly gross income, you’re probably better off getting debt relief than debt consolidation. Especially if you’re feeling overwhelmed by your debt. You’ll likely not pay it off any faster or save significantly – even with consolidation.
- On the other hand, if your debt load is fairly small and you wouldn’t benefit by lowering your interest rate, it’s probably not worth the time.
pro tip: Still unsure whether debt consolidation is the right option for you? Try using a personal debt consolidation calculator to help you decide. Simply type in the required information, and you’ll gain detailed results about whether consolidating would be effective.
what’s next?
It’s always a good idea to seek expert advice before making a major financial decision. For more information about debt consolidation – or any other debt management approaches - contact our partners at GreenPath Financial Wellness!
GreenPath has more than 60 years of experience helping people build financial health and resiliency. Their NFCC and HUD-certified counselors can give you options to manage credit card debt, student loans, homeownership, and so much more!
Start your path to a bright financial future by clicking the button below or calling 877-377-3399 to speak to one of their kind, caring counselors. It's FREE, with no pressure, and 100% confidential!
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