How to Consolidate Debts: If you are simply trying your best to make sure you meet up with your debt payments but it is seemingly feeling impossible or overwhelming for you to finish paying, it might be time to look at a new strategy. The strategy I’m talking about is called debt consolidation, which is what we are going to be looking at in this article today.
How to Consolidate Debts
One of the best possible ways to simply get your debt under control is to simply go for debt consolidation. So if you do not know what debt consolidation is or you do not even know how to go about it, you are reading the right article. Today I will show you everything you need to know about how to consolidate debt.
What is Debt Consolidation?
Debt consolidation is simply combining all your high-interest rate debts, such as credit card debt, into a single one. This means that you would only be paying for that single debt on a monthly basis, which is a good idea to get lower interest rates. It also helps to reduce your total debt and helps you reorganize it so that you can pay it off in a quicker manner.
When you do debt consolidation right, it can help you save money and also pay off your debt faster. However, it is not all approaches to debt consolidation that will solve your debt problem; rather, they will worsen it. This is why you need to understand how debt consolidation works and the method to use before going about it.
How Does Debt Consolidation Work?
We now know by now that debt consolidation is amazing for all your high-interest rate debts into one so that you can pay them as a single debt and have lower interest rates. What this means is that you are combining multiple debts such as credit cards, medical bills, and others into one payment each month with a low-interest rate.
This is an effective financial strategy if you have so many debts that carry higher interest rates that no matter how you pay, it seems as if they are not getting reduced. That being said, there are several methods you can use for consolidating debt. This is what we are going to be taking a look at next.
How to Consolidate Debts
To consolidate debt, there are different methods that you can choose from. Therefore, all you have to do is agree to the various methods to find the one that suits your dead pattern so that you can consolidate. The different methods of debt consolidation are listed below:
Methods of Debt Consolidation
Below are the different types and methods of debt consolidation:
- Balance transfer credit card
The best way to consolidate debt is to simply transfer all your existing debt into a zero balance transfer credit card. Once you have transferred all your debt to a 0 balance transfer card, you will no longer be paying interest on the debt for the specific time period of the promo the card offers. which gives you time to focus on paying off the loan principal instead of paying off the interest on loans or debts.
However, to get approval for a balance transfer credit card, you are going to need a good or excellent credit score of 690 or above, to be exact. Many balance transfer credit cards simply give promos between 12 and 21 months. Also, most balance transfer cards do not charge an annual fee.
- Debt consolidation loans – How to Consolidate Debts
If you cannot go for a balance transfer credit card, the next best option for you will simply be to go for a debt consolidation loan. Simply go for a debt consolidation loan that offers a lower APR than what you are currently paying on your debts. These types of loans can help you reduce your interest rates by hundreds or even thousands.
- Debt management plan
Debt management plans are designed to help people struggling with paying off large amounts of debt find relief. They are simply offered by nonprofit credit counseling agencies. However, they do not cover student loans or secured debt such as mortgages or auto loans. Make sure to go through your financial situation with a debt or credit counselor before using this plan.
When is Debt Consolidation a Good option?
As I have mentioned above, it is not in all cases that debt consolidation might be a good option for you to choose. Below are some situations where a department consolidation is a good option:
- Debt consolidation is a good idea when you have good credit because it will make you qualify for zero balance transfer credit cards and low-interest loans.
- It is also a good idea for those with high-interest debt because it allows you to save money by reducing the interest rate that you pay.
- Another situation where debt consolidation is a good idea is when it is becoming hard to keep up with the repayment of your debt. Debt consolidation simply softens the problem by making everything so that you can focus on paying it.
When is Debt Consolidation not a Good Option?
Just as there are certain situations that require debt consolidation, there are others where debt consolidation is a bad idea. These situations are listed below.
- If the amount of debt that you owe is too small.
- It is a bad idea if you are considering federal student loan forgiveness because it will reset the clock on the 10-year repayment requirements.
- Debt consolidation is a bad idea if you are not planning on improving your spending habits. If you keep on spending the way that led to debt consolidation, it will not have any effect.
These are some of the situations where it didn’t make sense to go for debt consolidation or not go for it.
How can I get all my debt into one payment?
The only possible way for you to get all your debt into one single payment is for you to embark on that consolidation. It merges all your debt into one, which usually has a reduced interest rate so that you can focus on paying it off.
Does debt consolidation affect your credit score?
Debt consolidation affects your credit score temporarily because the lender will perform a hard inquiry when you are applying for a debt consolidation loan. This can result in a lower credit score of about 10 points. However, this is temporary, so do keep that in mind.