You’ve been struggling to keep up with your debt payments for weeks, months—maybe even years.
You’re tired of feeling like you’re drowning in a sea of credit card balances and student loans. The good news is that there are options available to help you break free from this cycle!
One option is debt consolidation. It involves taking out one large loan (typically through a bank) to pay off all your other smaller debts.
Let’s discuss how debt consolidation works, who may benefit from it most, and what you need to know before making a decision about whether or not this option is right for you.
Debt consolidation is a way to combine some or all of your debt into one loan. This can make a significant difference in your debt reduction by…
- Simplifying the repayment process
- Potentially lowering your interest rate
Let’s consider an example. Let’s say you have two debts, one that’s $3,000 at 10% interest and another that’s $5,000 at 15% interest. If the term of both loans is 5 years, you would pay almost $3,000 in interest! Consolidating your debt into one loan that’s $8,000 at 7% would almost halve your interest payments.
There are several types of loans that this process can deal with, including home equity loans or car loans. It’s also possible to use a new credit card with a promotional interest rate and high credit limit to pay down your other debts (use this method with caution). Debt management programs sometimes offer debt consolidation for unsecured debt like credit cards and medical debt. Just know that you may not qualify for these types of loans if it’s too soon after filing bankruptcy or if you have a low credit score.
But debt consolidation may not always be your best option, especially if you can’t secure a lower interest rate or the term of the loan is significantly longer than your current loans. It’s best to collaborate with a financial professional who can help you assess your situation and create the right debt-busting strategy!